The Free Enterprise Action Fund (a small fund run by Republican Lobbyists) is a mutual fund that set out to prove that red leaning companies had superior earnings to that of blue leaning companies. During the first nine months of this year, the fund has lagged behind the S&P 500 by about 3 percentage points.
Seeking to make political hay out of this in the election season, the Democrats have started a fund of their own – ‘The Blue Fund.’ ( www.bluefund.com ) This all sounds, at least on the surface, ludicrous. The one-upmanship may never end, but I thought it would be interesting to analyze the one stock in each of their funds.
In the Blue (Democratic) Corner: Build-a-Bear Workshops (BBW) – If you have a child under 5, you probably have been there and have a stuffed ‘Hello Kitty’ dressed like tinker bell in a closet somewhere.. In the Red (Republican) Corner: Exxon Mobile (XOM) – If you have a car, you’ve probably noticed while filling up at the service station across the street that they charge about $0.10 more a gallon.
Why is Build-a-Bear more left-leaning? The Blue Fund site rates companies on seven factors including community, diversity, and environment. Aside giving parents a headache from encouraging a store full of kids to shout “Stuff my bear,” apparently this company also does these seven things equally as well.
Why is Exxon right leaning? I’ll leave that as a rhetorical question.
It doesn’t seem radical to be neutral on the energy sector. In other words, it doesn’t seem likely that XOM will appreciably sag in the coming months. That makes them perfect candidates for a covered call investment strategy or bull-put credit spread.
Build-a-Bear is also a good bet for a covered call investment strategy in November. Below is a chart looking at the trades:
| Covered Call Build-a-Bear Workshop (BBW) $29.12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Option | Expire/Strike | Option Bid |
Downside Protection |
%if Assigned |
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| BBWKF | 06 NOV 30.00 | $0.65 | 2.20% | 4.30% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Covered Exxon Mobil Corp (XOM) $71.62 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Option | Expire/Strike | Option Bid |
Downside Protection |
%if Assigned |
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| XOMKO | 06 NOV 75.00 | $0.15 | 0.20% | 4.90% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bull-Put Credit Spread Exxon Mobil Corp (XOM) $71.62 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sell | Expire/Strike | Bid | Buy | Expire/Strike | Bid | Return | Max Profit |
Max Risk |
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| XOMWN | 06 NOV 70.00 | $0.75 | XOMWM | 06 NOV 65.00 | $0.10 | 14.90% | $65.00 | $435.00 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Analyzing the three trades mentioned above, the Build-a-Bear trade looks good with mediocre downside protection.
Exxon covered call came close to being a good trade, but for $0.15 worth of downside protection you might as well buy the stock outright and forget the option broker fees.
However, the Exxon bull-put spread has some interesting elements. The stock must go below $69.35 for break even.
In summary, the Democrats lead with a conservative Build-a-Bear trade that has a respectable and safe return, and the Republicans come in second with a risky Bull-Put credit spread that could yield liberal profits.
Join PowerOptions today, and you too can start reaping the benefits of the covered call and/or the bull-put credit spreads 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 or bull put spread investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing calendar call spread options positions.
[tags] bull-put credit spreads, covered call investment strategy, investment strategy, option income, poweroptions, stock options [/tags]