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Posts Tagged ‘STZ’

New Covered Call on this Vice Stock

Constellation Brands (STZ), together with its subsidiaries, produces and markets beverage alcohol.  The stock was reiterated with a Buy rating by analysts at Stifel Nicolaus. The firm raised its price target on the stock to $69 from $64.  STZ Thursday posted better-than-expected Q2 results and said for FY 2014 it expects EPS of $2.80 to $3.10 per share. The Street is at $2.83 per share.  STZ is up 2.3% at $61.55, near the stock’s 52-week high of $62.15.

Here is a Covered Call Strategy:

STRATEGY: Look at the January 2014 60 covered call. For each 100 shares of Constellation Brands (STZ

) stock you buy, sell one January 2014 60 covered call option for a $57.38 (61.58 – 4.20) debit or better. That’s potentially a 4.6% assigned return.

COMMENT: The technicals for STZ are bullish with a strong upward trend. The stock has had support recently around 56.50. S&P rates this stock 4 STARS (out of five) – buy.

RISK: The stock has to drop 6.8% to threaten the break even point. This trade rates 3 keys out of 5 – moderate relative risk.

RESEARCH: S&P maintains Buy recommendation on shares of STZ. On revised forward multiple analysis, we lift our target price by $2 to $66 and our FY 14 (Feb.) and FY 15 EPS estimates by $0.12 and $0.07 to $2.90 and $3.55, respectively. Adjusted Aug-Q EPS of $0.96, vs. $0.71 exceeded our estimate of $0.85 on a significantly lower tax rate and expenses than our forecast. Crown depletions rose 7% on a strong summer selling season driven by healthy growth in Corona as well as expanded distribution for Modelo Especial. As production ramps in the Piedras Negras facility, we look for margins to improve in the beer segment.

 

Now You Can Sell Puts for Income in the New ETF

One of the recent trends in the income investment newsletters is the concept of writing (selling) puts for income.  You had to know that it would only be a matter of time before an ETF would be launched using this concept.  Investors sell put options to collect the premium income as an option strategy to generate investment income.  It is interesting to have an ETF to do the heavy lifting but prudent investors should monitor this new put writing ETF for positive results before buying shares.

Are you ready to sell puts on Netflix (NFLX), Green Mountain Coffee Roasters (CMCR) or Salesforce (CRM)?   If Yes, then this ETF is for you.  These and other stocks with current put writes is shown below.

ALPS just launched the U.S. Equity High Volatility Put Write Index Fund (HVPW) . The Fund seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an index called the NYSE Arca U.S. Equity High Volatility Put Write Index. The Index reflects the performance of a portfolio of exchange-traded put options on highly volatile stocks.

The ALPS HVPW Fund is designed for investors who seek to obtain income through selling put options, selling 60-day listed put options every 2 months (6 times per year) on 20 stocks. The Fund intends to distribute, at the end of each 60-day period out of net investment income and/or short-term capital gains, an amount of cash equal to 1.5% of the Fund’s net assets at the end of such 60-day period. If the Fund’s net investment income is insufficient to support a 1.5% distribution in any 60-day period, the distribution will be reduced by the amount of the shortfall. Also note while the Fund only intends to make such distributions out of net investment income and/or short-term capital gains, it is possible that in certain circumstances, a portion of a distribution may result in a return of capital (which is a return of the shareholder’s investment in the Fund).

Put options are a type of financial instrument used to provide the owner the right, but not the obligation, to sell the security at a set price, or “strike” price, on or before an expiration date.  Traders who write put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has the purchased the chance to sell stock to the put writer.

HVPW offers diversification by holding a portfolio of 20 names rolling every 2 months (i.e.120 puts per year).  This is one advantage to the ETF investor who doesn’t have the time or resources to diversify across multiple investments.

At the end of the two month period following expiration of the options the index is decreased by 1.5% to represent the 60 day period distribution, then the new set of 20 stocks are chosen for the new period’s option positions.

 

Here is a list of the initial 20 stocks with put writes:  HPQ ALXN, TRIP, CRM, NU, CTRX, ONXX, NVDA, DISH, MGM, BBY, MNST, CHK, GMCR, NTAP, CIE, NFLX, SHLD, VRTX, STZ

 

HPQ US 04/20/13 P14 -0.01%
ALXN US 04/20/13 P70 -0.01%
TRIP US 04/20/13 P37 -0.02%
CRM US 04/20/13 P150 -0.02%
NU US 04/20/13 P35 -0.02%
CTRX US 04/20/13 P45 -0.04%
ONXX US 04/20/13 P65 -0.04%
NVDA US 04/20/13 P11 -0.04%
DISH US 04/20/13 P31 -0.07%
MGM US 04/20/13 P11 -0.08%
BBY US 04/20/13 P15 -0.08%
MNST US 04/20/13 P42.5 -0.09%
CHK US 04/20/13 P17 -0.09%
GMCR US 04/20/13 P39 -0.10%
NTAP US 04/20/13 P31 -0.11%
CIE US 04/20/13 P22.5 -0.17%
NFLX US 04/20/13 P165 -0.19%
SHLD US 04/20/13 P41 -0.21%
VRTX US 04/20/13 P40 -0.21%
STZ US 04/20/13 P37.5 -0.26%
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