Historically, Japanese consumers have preferred to pay for purchases using cash, believing that going to into debt was to be avoided at all cost. This has long frustrated credit card companies and banks wishing to enter the Japanese consumer debt market. Americans may not be exporting much else, but American-style consumerism seems to be taking root in Japan.
Japanese credit card spending has traditionally been one-third the United States’ rate. However, this year Japanese credit card spending is up 14%. This growth rate has been accelerating consistently since 2004. Both the higher crime rate (making carrying cash more of a risk) and the rise in online shopping have contributed to Japanese consumers preference of credit cards.
One Japanese bank, Mitsubishi UFJ (MTU), is looking for new areas of growth, and is marketing ATM cards/credit cards that also can be used as prepaid credit cards.
Because credit cards are relatively new to the Japanese consumer market, many pay their credit card off in full at the end of every month. Also, the repayment structure is a little different in Japan. In America, a consumer can borrow up to a pre-determined limit and pay it back when they choose as long as they make monthly minimum payments. Unlike the United States, Japanese credit card customers are required to pay a portion of their credit card debt each month through automatic payments from their bank account.
Credit card companies earn a significant amount of revenue from customers who do not pay off their credit cards in full each month. Therefore, until the Japanese have fully embraced the American model of consumerism, per consumer profits will not be as great as those achieved in the United States.
Despite revolving credit having not yet been as widely accepted by the Japanese, it is somewhat reasonable to expect Japanese credit card usage will continue on its current growth trajectory. Based on this analysis, Japanese credit card companies appear bullish and a covered call investment strategy for MTU may be appropriate.
Using PowerOptions website to search for covered calls on MTU returns the following position:
| MITSUBISHI UFJ FINANCIAL (MTU) $12.50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Expiration/Strike | Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
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| MTULV | 06 DEC 12.50 | $0.40 | 3.20% | 3.30% | 3.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
This is a textbook covered call options position, allowing for reasonable downside protection (3.2%) as well as realistic potential profits (3.3%) in only 40 days.
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[tags] MTU, Mitsubishi UFJ Financial Inc., covered call investing, covered call investment strategy, covered call options, investment strategy, iron condor, option income, poweroptions , stock option trading, stock options [/tags]