Sewing Up Profits – Covered Call Investing

For many years, make-it-yourself-sewing retail businesses have not been very popular on Wall Street, as the idea of stay-at-home-mom’s making clothes for her children was considered faux pas. Working moms would tender the argument, “why spend several hours making a garment when it can be purchased fairly inexpensively at the mall?” But recently, hand made clothing has seen a resurgence of interest by younger generations. It is becoming more fashionable to wear something hand-made. So young daughters are now asking for sewing machines for Christmas and using the machinery to make their own custom clothing.

The players in the retail fabric business are: Jo-Ann Stores (JAS), AC Moore Arts & Crafts (ACMR), Hancock Fabrics (HKF), Michaels Stores (private), Hobby Lobby Stores (private) and Wal-Mart (WMT). In June of 2006, Bain Capital and The Blackstone Group took Michaels Stores private. Generally, when private equity companies like Bain Capital and The Blackstone Group take a public company private they have the intention of revamping the company to make it more attractive to investors. The private equity companies then later take the company public or sell the company to another entity with the intent of recouping a nice profit on the deal.

With the renewed interest in handcrafted clothing, a covered call investment strategy for the retail fabric/craft could potentially be very lucrative. Using PowerOptions’ Option Chain Tool we searched for covered call investing opportunities for retail fabric/craft stores ACMR and JAS. (Note: Hancock Fabrics’ stock is not optionable.) The results are shown below:

The ACMR covered call investment strategy stock options position has a potential return of 3.2% in 36 days with downside protection of 4.8%. Additionally, the JAS covered call investment strategy stock options position has a potential return of 3.1% in 36 days with downside protection of 7.9%. Both covered calls positions have similar potential returns but the JAS position, which is slightly more in-the-money (ITM) than the ACMR position, provides larger downside protection than the ACMR covered calls position.

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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 options positions.

PowerOptions’ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.

[tags]Michaels Stores, Hobby Lobby Stores, Bain Capital, The Blackstone Group, ACMR, A.C. Moore Arts & Crafts Inc., JAS, Jo-Ann Stores Inc. Class A, WMT, Wal-Mart Stores Inc., covered call investing, covered call investment strategy, covered call options, investment strategy, iron condor, option income, poweroptions, stock option trading, stock options[/tags]