Covered Call trade on Advanced Auto Parts (AAP).
Look at the December 2011 70 covered call. For each 100 shares of Advance Auto Parts (AAP) stock you buy, sell one December 2011 70 covered call option for a 67.06 (69.31 – 2.25) debit or better. That’s potentially a 4.38% assigned return. This stock also pays a dividend which may add another 0.1% to the return. The stocks last ex-dividend date was 9/21/2011.
The technicals for AAP are bullish with a possible trend reversal. The stock is under distribution with support at 64.38. S&P rates this stock 5 STARS (out of five) – strong buy.
For those wanting downside protection, buy the March 2012 65 put for 3.50. Sell the put when you exit the covered call. This is optional for the covered call to protect the downside of AAP at 65.
- On 11/09/11, the company announced quarterly earnings of 1.41 per share, a positive surprise of 19.4% above the consensus 1.18. Over the past 4 quarters, the company has reported 3 positive (>2%), 1 negative(<-2%), and 0 in-line (within 2%) surprises. The average surprise for this time period has been 5.0%.
- AAP’s current quarter consensus estimate has remained relatively unchanged over the past 90 days at 0.68. Estimates within its Subsector have moved an average of 0.0% during the same time period.
- During the past four weeks, analysts covering AAP have made 1 upward and 0 downward EPS estimate revisions for the current quarter.