In the blog article, “Wal-Mart (WMT) – Generic Drugs – Options Investing”, we analyzed the generic drug industry in view of Wal-Mart’s (WMT) introduction of $4 generic drugs. And in article, “Generic Drug Investing Returns +1.3% in Nov.”, we showed the profitability of the generic drug covered calls strategy and also selected a covered calls position for December 2006. The Barr Pharmas (BRL) covered calls position selected returned a very nice +2.2% return, in only 18 days!
Competitors:
Competitors for BRL include: Mylan Laboratories Inc. (MYL), Watson Pharmaceuticals Inc. (WPI), and Ortho-McNeil Pharmaceutical, Inc. (private).
Potential Trades:
In light of Wal-Mart’s $4 generic drug offering, we are still bullish on the generic drug players. Using PowerOptions SmartSearchXL stock options search tool we found the following generic drug covered calls stock options positions for stock options expiration in January of 2007:
| SmartSearchXL covered call search for December 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
Option Sym |
Expire &Strike |
Opt Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd. |
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| PRX | 21.68 (+0.45) | PRXAX | 07 JAN 22.5 (29) | 0.65 | 3 | 3.1 | 7.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| MYL | 20.18 (-0.07) | MYLAD | 07 JAN 20.0 (29) | 0.60 | 3 | 2.1 | 2.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Two covered calls stock options positions were found with returns ranging from +2.1% to +7% and with downside protection for both positions of +3%.
The PRX covered calls position is out-of-the-money [OTM] with a maximum potential return of +7%. OTM covered calls positions require the stock price of the underlying to appreciate in order to realize the maximum potential return. Even if the PRX stock price remains stagnant at stock options expiration, the position will return a very nice +3.1%.
The MYL position is in-the-money [ITM] with a maximum potential return of 2.1%.
Generally, ITM positions have greater downside protection than OTM positions, but that is not the case for this example as both positions exhibit downside protection of 3%. The anomaly of the OTM/ITM positions having the same downside protection is probably a result of the higher volatility of PRX over the last year.
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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 stock options positions.
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[tags]blog, generic drug, Ortho-McNeil Pharmaceutical, Inc., BRL, Barr Pharmas. Inc., MYL, Mylan Labs., WPI, Watson Pharma. Inc., covered call investment strategy, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options[/tags]