America’s recent emphasis on ethanol has meant an increase in corn and ethanol production. Like corn, ethanol is generally made in small towns throughout the Midwest. Point-to-point transport of the corn and the transportation of the ethanol to the end user are usually done by train. As ethanol production increases, railroads also must beef up their operations.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_02_01_Railroad.mp3
Ken Eriksen, a senior vice president of Informa Economics Inc., an agricultural and renewable fuels consulting firm in Memphis, Tennessee characterized the logistical difficulties in rail and transportation for the ethanol industry as “the mountain to climb…as we go forward.”
Because the water and other chemicals needed for ethanol production can’t yet be sent through pipelines similar to those moving other fuels, the ethanol industry has been forced to rely on the already over-taxed railroads. This means transport fees could vastly increase, as supply is low and demand is high.
“It’s supply and demand,” says Walt Wendland, president and CEO of Golden Grain Energy LLC in Mason City, Iowa. “We’re a captive market for them.”
Thestreet.com, a site closely affiliated with Jim Cramer and his Mad Money television show, is bullish on one railcar manufacturer in particular. In their article entitled, 10 short squeeze stocks, the site was bullish on Greenbrier (GBX).
Another company garnishing lots of attention is American Railcar Industries (ARII). Analysts at Matrix Research have recently upgraded the stock to a strong buy.
Competitors:
Competitors for GBX include: GATX Corp. (GMT), Trinity Industries Inc. (TRN), ACF Industries LLC (private), and FreightCar America Inc. (RAIL).
Competitors for ARII include: Trinity Industries Inc. (TRN), Millennium Rail, Inc. (private), and Union Tank Car Company (private).
Potential Trades:
All of the following option trades have 44 days until expiration. Greenbrier Companies Inc. is currently trading at $28.77. American Railcar is currently trading at $29.40.These trades were discovered using the powerful suite of option search tools found at PowerOptions .
| Covered Call – Greenbrier Companies Inc. (GBX) $ 28.81 (44) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Inch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GBXCF | 07 MAR 30.00 | $1.25 | 4.30% | 4.50% | 9.00% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Covered Call – American Railcar (ARII) $ 29.40 (44) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Inch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UKUCF | 07 MAR 30.00 | $1.25 | 4.30% | 4.40% | 6.60% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Greenbrier covered call trade, an out of the money covered call, offers 4.3% downside protection and a potential profit of 4.5% if the stock remains unchanged. If the stock rises above the $30 strike price of the option, the potential profit becomes 9.0%. The net cost of this trade, per 100 options, is $2,756.00.
The American Railcar covered call trade, an out of the money covered call, offers 4.3% downside protection and a potential profit of 4.4% if the stock remains unchanged. If the stock rises above the $45 strike price of the option, the potential profit becomes 6.6%. The net cost of this trade, per 100 options, is $2,809.00.
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions’ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
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]ethanol, Ken Eriksen, Informa Economics Inc., Memphis, Tennessee, Walt Wendland, Golden Grain Energy, Mason City, Iowa, Thestreet.com, Jim Cramer, Mad Money, Matrix Research, ACF Industries LLC, Millennium Rail, Inc., Union Tank Car Company, ARII, American Railcar Indus. Inc., GBX, Greenbrier Companies Inc. (The), GMT, GATX Corp., RAIL, FreightCar America Inc., TRN, Trinity Industries Inc., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]