Wal-Mart recently announced it has introduced $4 prescriptions for generic drugs and currently offers $4 generic drug prescriptions in these 15 states: Alaska, Arizona, Arkansas, Delaware, Florida, Illinois, Indiana, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Texas & Vermont.
The current list of generic drugs available for $4 is available at: Floridagenericdruglist.pdf. The $4 per prescription for generic drugs only applies for up to a 30-day supply.From a business perspective, this means the companies supplying generic drugs to Wal-Mart are going to be very busy, as more of Wal-Mart’s customers switch from brand name pharmaceuticals to the generic versions.
With this in mind, the generic drug manufacturing stocks look attractive for a covered call investment strategy. Using PowerOptions stock options search tool SmartSearchXL to search for covered call investing positions in generic drug manufacturing companies on October 20, 2006 with all stock options expiring November 17, 2006 (November stock options expiration day), the following positions were found:
| SmartSearchXL covered call search for October 20 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price 10/20/2006 |
Option Sym |
Expire &Strike |
Opt Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRX | 19.50 (-0.23) | PRXKD | 06 NOV 20.0 (29) | 0.9 | 4.6 | 4.8 | 7.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MYL | 21.91 (+0.10) | MYLKX | 06 NOV 22.5 (29) | 0.6 | 2.7 | 2.8 | 5.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRX | 19.50 (-0.23) | PRXKW | 06 NOV 17.5 (29) | 2.4 | 12.3 | 2.3 | 2.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Analysis
Three generic drug manufacturers covered call strategy stock options positions were returned with potential returns ranging from 2.3% to 7.5% (not bad for a 29 day investment) and downside protection ranging from 2.7% to 12.3%.
The search results illustrate the reason the covered call investment strategy is considered conservative, as all of the positions have “downside protection” of at least 2.7% (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 second PRX 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 as in the case of the MYL position and the first PRX position. OTM calls are often more a play on stock appreciation rather than covered call income and this can be seen by the higher return if assigned and the lower percent downside protection.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the 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] covered call investing, covered call investment strategy, investment strategy, option income, poweroptions, stock options [/tags]