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Defensive Covered Call Strategy on Apache Corp (APA)

This is a defensive in-the-money covered call recommendation on Apache Corporation setup as an income investment.

Covered Call Strategy:

Look at the January 85 covered call. For each 100 shares of Apache Corporation (APA) stock you buy, sell one January 85 covered call option for an 80.08 (94.63 – 14.55) debit or better. That’s potentially a 6.1% assigned return. This stock also pays a dividend which may add another 0.4% to the return. The stocks last ex-dividend date was 7/20/2011.  S&P rates the stock as 5 stars (strong buy).  The stock has to drop 15.4% to threaten the breakeven point.

S&P research notes:

 S&P maintains strong buy recommendation on shares of Apache Corp (APA) .  APA plans to acquire ExxonMobil’s (XOM) Beryl and other North Sea fields for $1.75B(expected Q4 close), lifting North Sea production and reserves 54% and 44%, respectively (65% liquids).  North Sea success at Forties (doubled reserves since ’03) should aid to maximize Beryl opportunities.  APA boosts exposure to higher-priced Brent crude and UK natural gas. North Sea will represent 11% of production (7% prior). We find APA’s balance sheet superior with debt-to-capital of 23%, cash of $1.1B, and capital flexibility vs. peers, and see valuation as compelling.

Free Covered Call Trade

Free covered call recommendation on Alkermes is a stock and call setup for income investment.

CALL STRATEGY:

Look at the November 16 covered call. For each 100 shares of Alkermes (ALKS) stock you buy, sell one November 16 covered call option for a 14.78 (16.13 – 1.35) debit or better. That’s potentially a 8.3% assigned return on investment.

 The technicals for ALKS are bearish with a weak downward trend. The stock is under accumulation with support at 15.70. S&P rates this stock 4 STARS (out of five) – buy.
 S&P maintains Buy opinion on shares of Alkermes (ALKS). ALKS completes its acquisition of Elan Drug Technologies for $1.02B, consisting of $500M in cash and issuance of 31.9M of its shares. We continue to see the deal significantly diversifying revenues with royalties from products with long patent lives, thus lowering its risk profile. We also see robust cash flows supporting a rapidly advancing R&D pipeline. On anticipated earnings accretion, we raise our adjusted FY 12 (Mar.) EPS estimate $0.47 to $0.08 and FY 13’s by $0.79 to $1.02. We keep our target price at $22, which reflects the expected benefits from the deal.
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Free Covered Call Trade on Novartis

Covered Call Recommendation on Novartis
Call Strategy: Look at the January 55 covered call. For each 100 shares of Novartis AG (NVS) stock you buy, sell one January 55 covered call option for a 51.62 (55.77 – 4.15) debit or better. That’s potentially a 6.5% assigned return.

 The technicals for NVS are bearish with a weak downward trend. The stock is under accumulation with support at 54.77. S&P rates this stock 4 STARS (out of five) – buy.

S&P research notes:

 S&P reiterates buy opinion on ADSs of Novartis AG (NVS) . NVS recently updated investors on its long-term strategy, indicating that group level margins will be enhanced by its Alcon and Vaccines & Diagnostics (V&D) units, alleviating the impact of patent losses on key brands such as Diovan, Femara and Zometa.
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Free Covered Call Trade on Yahoo

Covered Call Recommendation on Yahoo!

STRATEGY:

Look at the January 12.50 covered call. For each 100 shares of Yahoo (YHOO) stock you buy, sell one January 12.50 covered call option for an 11.25 (13.38 – 2.13) debit or better. That’s potentially an 11.1% assigned return.  The technicals for YHOO are bullish with a weak downward trend. The stock is under accumulation with support at 12.45. S&P rates this stock 4 STARS (out of five) – buy.

S&P reiterates buy opinion on shares of Yahoo (YHOO) . YHOO announces Carol Bartz has been relieved of her CEO duties. CFO Tim Morse continues in his current role and has been appointed interim CEO. The board is engaging an executive search firm to help identify CEO candidates. We are not surprised by this news. Bartz became CEO inJanuary 2009 and was widely criticized for not turning YHOO around. She worked to refocus YHOO, which is now being positioned as the “premier digital a media company,” but was being run by a combative long-time technology executive. We think this change makes sense and should be a positive for the stock.
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FREE Covered Call Trade

Under Armour (UA) is trading at $69.73.  The volatility is high so premiums are being richly rewarded.  Additionally, this covered call is in-the-money to provide more downside protection.  The summary of this covered call recommendation is below.

The UA October ’11 COVERED CALL with a 67.50 strike price could potentially yield a 7.6% return if UA stock stays above $67.50 a share through expiration 50 days from now.  The covered call shown here has a 4 Key (Low Relative Risk) ranking and 10.04% downside protection.  On July 26, 2011 S&P set a $93.00 12-Month price target for UA which is currently trading at $23.27 below that target.  The covered call trade offers limited protection if the stock drops in price but if the stock goes below $62.73 expect losses.

Sell the October 2011 67.50 strike price at $7.00.  Sell one call for each 100 shares of stock you own.  The call strike price is 3.2% in-the-money.  The annual assigned return is 55.51%.  The breakeven is $62.73 so if using a stop, set it above the breakeven.

 

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Risk-On Relief Rally with Amazon Covered Call

After another large decline last Thursday, equities  along with other “risk-on” assets appear poised for a relief rally that could  come early in the week as the markets begin anticipating and debating what  Federal Reserve Chairman Ben Bernanke may deliver in his Friday speech. It was  in last year’s speech from Jackson Hole when the Chairman unveiled QE2 setting  the stage for an equity rally that helped to boost the S&P 500 Index by 32%  before reaching a top on May 2, 2011. Although the early comments do not  reflect high expectations, unless there is news of more negative developments  in Europe chances are we can expect some short covering before the speech,  after all nobody knows what he may pull out of his hat.

Here is a FREE Covered Call Trade:

Covered Call STRATEGY:

Look at the January 160 covered call. For each 100 shares of Amazon.com (AMZN) stock you buy, sell one January 160 covered call option for a 147.40 (180.55 – 33.15) debit or better. That’s potentially an 8.5% assigned return.   The technicals for AMZN are bearish with a possible trend reversal. The stock is under distribution with support at 175.37. S&P rates this stock 4 STARS (out of five) – buy.   The stock has to drop 18.4% to threaten the breakeven point.

S&P upgrades recommendation on shares of Amazon.com (AMZN) to buy from hold. Here are the notes: Following a recent 20% decline, we think AMZN is attractively priced trading well below our $250 DCF-based target price. While we expect continued near-term investments in fulfillment and technology to weigh on the bottom line over the next several quarters, we believe AMZN has a significant opportunity for long-term operating margin growth. We think industry drivers remain positive, with worldwide online penetration growth and with more people choosing to shop online. In addition, AMZN’s recent sales execution and market share gains have been peerless, in our opinion.
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