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Posts Tagged ‘covered call and protective put’

Free Covered Call Trade on Yahoo (YHOO)

Covered Call Recommendation on Yahoo (YHOO)

STRATEGY:

Look at the November 2011 14 covered call.  For each 100 shares of Yahoo (YHOO) stock you buy, sell one November 2011 14 covered call option for a $12.30
(13.50 – 1.20) debit or better.  This is potentially a 13.8% assigned return.  Yahoo does not pay a dividend.

Blanket Put:  If you are looking for a blanket put for protection, look to buy the Apr 2012 13 Put for $2.00.  You will sell the Blanket Put when the covered call position is closed.
RISK  The technicals for YHOO are bullish with a weak downward trend.  The stock is under accumulation with support at 11.29. S&P rates this stock 4 STARS (out of five) – buy.

S&P research notes:

S&P reiterates Buy opinion on shares of Yahoo (YHOO) .  According to unconfirmed reports from Bloomberg and others, at a scheduled talk and Q&A session held late last week at Stanford University’s graduate business school, Jack Ma, the founder, Chairman and CEO of Alibaba Group, expressed an interest in buying YHOO. He referenced discussions with the company and other interested parties. We think that YHOO is considering strategic alternatives, and believe its 43% stake in Alibaba is perhaps its most valuable single asset.  Ma and Alibaba have been interested in repurchasing all or some of YHOO’s stake for some time.

Covered Call and Blanket Put on Walgreen (WAG)

Walgreen covered call and protective put

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Covered Call and Blanket Put on Walgreens (WAG).

STRATEGY: Look at the November 34 covered call. For each 100 shares of Walgreen Co. (WAG) stock you buy, sell one November 2011 34 covered call option for a 32.15 (33.30 – 1.35) debit or better. That’s potentially a 5.75% assigned return. This stock also pays a dividend which may add another 0.7% to the return. The stocks next ex-dividend date is projected to be 11/17/2011.

The technicals for WAG are bullish with a weak downward trend. The stock is under accumulation with support at 34.55. S&P rates this stock 4 STARS (out of five) – buy.

RISK: To protect you capital, you should look at buying the Apr 2012 33 Put at 3.50. This will limit your downsize to the put strike price of 33. And you can continue to sell calls each month for premium as long as the trade is still working. The initial trade risk is $2.45 (see chart) but this will decrease for each additional call sold in the months following November expiration.  When you exit the covered call you will sell the Apr 2012 33 Put at market value to recoup some of your protective put cost.

S&P research notes: S&P reiterates buy recommendation on shares of Walgreen Co. (WAG). WAG reports Aug-Q operating EPS of $0.57, vs. $0.49, in line with our estimate and $0.02 above consensus from Capital IQ. We believe the shares may experience near-term pressure due to tense contract negotiations with Express Scripts (ESRX) . However, we think an agreement will be reached before expiration or shortly after expiration of the current contract. Due to greater than expected non-pharmacy margin pressures as consumers trade down, we are reducing our FY 12 (Aug.) EPS projection $0.06 to $3.04, and our 12-month target price by $7 to $40, on comparative analysis.

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