Aventine Renewable Energy Holdings, Inc. (AVR), a leading producer and supplier of ethanol, announced earlier this month it would be building new storage facilities in the state of Missouri. Aventine Renewable Energy produces, supplies, and markets ethanol, bio-products and animal feed products throughout the United States. Among its products are ethanol used as fuel, corn gluten, and yeasts. The company also does beer fermentation for the production of beer. The company was formerly known as Williams Bio-Energy and is based in Aberdeen, South Dakota.
The four new storage facilities in Missouri will give the company a total of six in the state. Beginning January 1, 2008 Missouri has mandated the use of ethanol and the additional new storage facilities will give Aventine extra capacity to aid in meeting the mandate.
The mandate requires Missourians to use a 10% ethanol-petroleum blend in all gasoline sold within the state. The company anticipates the new terminals will aid in assuring Missouri consumers will have an adequate supply of the ethanol to comply with the mandate. The company also plans to expand their distribution footprint across the US as ethanol becomes more widely mandated. The company’s president and CEO, Ron Miller, considers his company’s distribution infrastructure sufficient to provide differentiation of Aventine from its competitors.
Currently, ethanol and bio-diesel constitute around 4% of transportation fuels. Experts estimate this figure could rise to 20% or more as the fuels are mandated for use in more states. The bio-fuel landscape appears attractive as Washington legislators have continually lauded energy independence and farmers, who have in the past relied heavily on government handouts, may also generate profits in the new bio-fuel market segment.
Experts have stated oil would have to drop below $30 a barrel for several months before the economics of ethanol would be a losing proposition. Ethanol is currently trading around $60 a barrel and major ethanol manufacturer Archer Daniels Midland (ADM) has reported record profits. Currently, Aventine Renewable Energy is down over 40% from its initial public offering price and its competitor VeraSun Energy (VSE) is down nearly 20%. But with a P/E/G of 0.37 and a P/E of 18, some investors may find Aventine a solid value. With Aventine’s attractive market and market position, we consider a covered calls stock options position for the company a viable strategy to pursue. We used PowerOptions patented SmartSearchXL stock options search engine to find potentially lucrative covered calls positions for Aventine as shown below:
|JAN 07 $25.00 (52 Days)Aventine Renewable Energy Inc. (AVR) $ 25.58|
|AVRAE||07 JAN 25.00||$1.85||7.20%||5.40%||5.40%|
The selected trade for Aventine is an in-the-money [ITM] covered calls stock options position. ITM means the option expiration price is below the current stock price. The selected covered calls stock options position offers excellent downside protection of 7.2% and a solid potential profit of 5.4%, in only 52 days.
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[tags]beer, ADM, Archer-Daniels-Midland Co., AVR, Aventine Renewable Energy Inc., VSE, VeraSun Energy Corp., covered call investment strategy, investment strategy, iron condor, option income, poweroptions, stock option trading, stock options[/tags]