With North Korea’s claim to have detonated a nuclear weapon, the list of nuclear capable countries expands. Japan is probably the biggest loser with North Korea’s new nuclear capability, as Japan is within range of a North Korean nuclear missile.
It is believed Iran is also developing nuclear capability that would cause more political instability in the Middle East. The world’s geopolitical structure has always been a source of danger, but with small radical governments developing nuclear warhead capability, the world is ever becoming more dangerous.
Political power and persuasion will be used to aid in preventing nuclear proliferation. Inevitably measures utilizing intelligence and even possibly force will be used on the nuclear front. Companies standing to gain in this environment are military defense contractors, and a possible investment strategy to consider is a covered call investment strategy for the stocks of military defense contractors.
Using PowerOptions‘ SmartSearchXL, we performed a covered call investing strategy search on October 9, 2006 with all stock options expiring on November 17, 2006 (November stock options expiration day) for companies performing a large amount of contracts for military defense with the U.S. Government and the results are shown below:
| SmartSearchXL Search Results On October 9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price 10/6/06 |
Option Sym |
Expire &Strike |
Opt Bid |
%Dnsd. Prot |
%If Unch. |
%If Assgnd. |
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| CAI | 56.87 (-0.02) | CAIKK | 06 NOV 55.0 (40) | 3.50 | 6.20 | 3.10 | 3.10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DRS | 45.95 (+0.08) | DRSKI | 06 NOV 45.0 (40) | 2.15 | 4.70 | 2.70 | 2.70 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CSC | 48.08 (-0.39) | CSCKW | 06 NOV 47.5 (40) | 2.00 | 4.20 | 3.10 | 3.10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Analysis
The covered call investment strategy returns for the defense contractor segment are not as spectacular as some of the other segments we’ve analyzed, nevertheless, returns in the 3% range for an investment of only 40 days are in the acceptable range. One company, CSC, on the surface not appear to be a significant defense contractor, but CSC had 2006 defense oriented revenues of $1.6 billion, a nice chunk of change.
The search results illustrate the reason the covered call investment strategy is considered conservative (see “Aggressive Strategy for the Conservative Investor” for more information). All of the positions have “downside protection” of at least 4%. The downside protection is the percentage that a stock can decline in value before the position will incur a loss. For example, the CAI covered call options position has downside protection of 6.2%.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the defense contractor covered call investment strategy.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a covered call investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing covered call stock options positions.
[tags]stock options, investment strategy, covered call investing, option income[/tags]