Wal-Mart announced it has agreed to purchase a Chinese merchandising chain for $1 billion. The deal, if approved by Chinese regulators, would give Wal-Mart the largest retail presence in China. Maybe Wal-Mart will have better success in China, than in South Korea and Germany, two countries the large retailer found rough going and recently pulled out of.
Of course, we’re still partial to the JCPenny (JCP) strategy we outlined in, “Wal-Mart – Stuck in a Retail Rut“, and maybe Wal-Mart will consider going down that path as well.
Regardless of Wal-Mart’s success (or not) in China or whether or not it has a viable U.S. market strategy for growth, Wal-Mart is still a good company and worthy of a covered call investment strategy.
We executed a search for covered call investing opportunities for Wal-Mart using PowerOptions SmartSearchXL Internet based stock options search tool on October 17, 2006 and found the following potential covered call strategy stock options investment opportunity (all stock options expiring in November):
|SmartSearchXL Covered Call Search for October 17|
|WMT||48.16 (-0.16)||WMTKW||06 NOV 47.5 (32)||1.65||3.4||2.1||2.1|
One Wal-Mart covered call strategy stock options position was found, with a potential return of 2.1% and 3.4% downside protection, not a bad return for 32 days.
The search results illustrate the reason the covered call investment strategy is considered conservative, as the position has “downside protection” of 3.4% (see “Aggressive Strategy for the Conservative Investor” for more information). The downside protection is the percentage that a stock can decline in value before the position will incur a loss. Downside protection is simply the option premium divided by the stock price. The WMT position is In the Money (ITM); therefore the percent of unchanged in price and the percent if assigned are equal in value. Out of the money (OTM) calls offer greater upside potential, but require the stock price to appreciate in order to realize the greater returns. OTM calls are often more a play on stock appreciation rather than covered call income.
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] covered call investing, covered call investment strategy, investment strategy, option income, poweroptions, stock options [/tags]