Sometimes comical, and always entertaining, stock analyst Jim Cramer answered a question in his mailbag column last Friday afternoon. Today, the PowerOptions’ blog takes a look at Cramer’s comments and offer some option trading suggestions. This blog talked briefly about TiVO’s partnership with Comcast (CMCSA) in the 9 January article, “TiVO Partners for Profits – Covered Call”.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_01_16_ATT.mp3
When asked what he thought of AT&T (T) and Comcast, Cramer replied, “Wow — you just named my top telecom and cable stocks, respectively. AT&T has been born again, following the closure of the BellSouth purchase. The deal finally creates one security you can buy that gives you a pure-play on Cingular Wireless. Comcast has always been best-of-breed in the cable business, and last year’s 63% gain is a sign that investors are finally embracing the sector once again.”
David Janazzo of Merrill Lynch and Jason Armstrong of Goldman Sachs, two analysts with rock star credentials, both back AT&T with 5 star ratings. Comcast gets similar treatment from Jonathan Atkin of RBC Capital Markets and Hamilton Faber of Atlantic Equities.
AT&T to Offer Cheap and Naked DSL:
Cheaper high-speed Internet service is coming. AT&T is projected to start charging $19.95 a month for “naked” DSL. The term “naked” means customers don’t have to purchase other AT&T services to receive the rate. The telecom giant currently charges $45 for a “naked” DSL subscription. As part of the plan, AT&T will charge new subscribers $10 for DSL if they buy AT&T phone service. This, one can only assume, would be “clothed” DSL.
AT&T will achieve these rates because of the Federal Communications Commission’s recent approval of the BellSouth acquisition. To get the necessary votes from the Democratic members of the FCC, AT&T agreed, with a small amount of kicking and screaming, to charge the lower DSL rates.
The FCC has been pushing “plug-and-play” rules to force cable companies to provide service allowing consumer television and other equipment to connect seamlessly between different cable television vendors. With ever increasing rules for “plug-and-play”, the revenue cable television vendors generate from renting set-top boxes may diminish.
Competitors:
Competitors for T include: Qwest Communications International Inc. (Q), Sprint Nextel Corp. (S), Verizon Communications Inc. (VZ), BellSouth Corp. (BLS), Broadwing Corp. (BWNG), Cincinnati Bell Inc. (CBB), Cbeyond Inc. (CBEY), CenturyTel Inc. (CTL), Citizens Utilities Co. (CZN), Earthlink Inc. (ELNK), Embarq Corp. (EQ), Equinix Inc. (EQIX), Fairpoint Comms. Inc. (FRP), FiberTower Corp. (FTWR), Global Crossing Ltd. (GLBC), Internap Network Services Corp. (INAP), IPass Inc. (IPAS), Iowa Telecom. Svs. Inc. (IWA), Level 3 Comm. Inc. (LVLT), Talk America Hldgs. Inc. (TALK), Telephone & Data Systems Inc. (TDS), TNS Inc. (TNS), Time Warner Telecom Inc. (TWTC), and Windstream Corp. (WIN).
Potential Trades:
The following is a look at potential Comcast and AT&T trades found using PowerOptions’ dynamic suite of web-based search tools.
| Covered Call – AT&T Corp. (T) $ 34.73 (32 Days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Inch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TGB | 07 FEB 35.00 | $0.80 | 2.30% | 2.40% | 3.20% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Covered Call – Comcast Corp. (CMCSA) $ 44.09 (32 Days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Inch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCQBV | 07 FEB $42.50 | $2.25 | 5.10% | 1.60% | 1.60% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bull-Call Debit Spread — AT&T Corp. (T) $ 34.73 (32 Days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Strike Info |
Bid Price |
Buy Option |
Strike Info |
Ask Price |
% Return |
Break Even |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 07 FEB $35 | $0.80 | TBZ | 07 FEB $32.50 | $2.60 | 38.90% | $34.30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bull-Call Debit Spread — Comcast Corp. (CMCSA) $ 44.09 (32 Days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sell Opt |
Strike Info |
Bid Price |
Buy Option |
Strike Info |
Ask Price |
% Return |
Break Even |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCQBV | 07 FEB $42.50 | $2.25 | CCQBH | 07 FEB $40 | $4.50 | 11.10% | 42.25 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The first covered call trade, an AT&T out of the money covered call, offers 2.3% downside protection and a potential profit of 2.4% (32 days) if the stock remains unchanged. If the stock rises above the $35 option strike price, the potential profit becomes 3.2%.
The second covered call trade; a Comcast in the money covered call, offers 5.1% downside protection and a potential profit of 1.6% if the stock remains unchanged or rises.
The third trade is a bull call debit spread involving the AT&T stock. This trade offers a 38.9% potential profit if the stock goes above $35.00. If the stock decreases below the break-even price of $34.30, the investment begins to lose money. If the stock price goes below the lower strike price of $32.50, the entire investment is lost. The net cost of this trade, per 100 options, is $180.00.
The forth trade is a bull call debit spread involving the Comcast stock. This trade offers an 11.1% potential profit if the stock remains above $42.50. If the stock decreases below the break-even price of $42.25, the investment begins to lose money. If the stock price goes below the lower strike price of $40, the entire investment is lost. The net cost of this trade, per 100 options, is $225.00.
For more information about how to identify and research great option trades, visit the PowerOptions website. PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades and you will find the data you need to make quick, clear, and informed decisions. With PowerOptions tools, you can trade knowing you have found the best investment for your risk/reward profile. PowerOptions provides a toll-free number (1-877-992-7971) for customer support (PowerOptions’s customer support is second to none in the industry) for answering customer questions.
PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.
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]Jim Cramer, Cingular Wireless, David Janazzo, Merrill Lynch, Jason Armstrong, Goldman Sachs, Jonathan Atkin, RBC Capital Markets, Hamilton Faber, Atlantic Equities, DSL, Federal Communications Commission, BellSouth, FCC, CBB, Cincinnati Bell Inc., CBEY, Cbeyond Inc., CMCSA, Comcast Corp. Class A, CTL, CenturyTel Inc., CZN, Citizens Utilities Co., ELNK, Earthlink Inc., EQ, Embarq Corp., EQIX, Equinix Inc., FRP, Fairpoint Comms. Inc., FTWR, FiberTower Corp., GLBC, Global Crossing Ltd., INAP, Internap Network Services Corp., IPAS, IPass Inc., IWA, Iowa Telecom. Svs. Inc., LVLT, Level 3 Comm. Inc., Q, Qwest Comm. Intl., S, Sprint Nextel Corp., T, AT&T Corp., TDS, Telephone & Data Systems Inc., TNS, TNS Inc., TWTC, Time Warner Telecom Inc., VZ, Verizon Wireless, WIN, Windstream Corp., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]