Lance Inc. (LNCE) released its fourth quarter earnings Monday in a report showing profit more than tripling over the same period one year ago. But higher commodity prices, such as flour and corn, as well as less than anticipated sales of cookies and crackers slightly decreased results in the fourth quarter causing the stock to be below Wall Street estimates.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_02_23_LNCE.mp3
CEO David V. Singer called 2007 “another year of transition.” He went on to state the company would focus on the most profitable products as they try to improve the efficiency of its supply chain and delivery system. However, some analysts feel the stock is undervalued as it languishes at 22% of its 52-week range. Analysts at Matrix Research recently upgraded the stock and Jonathan Feeney of Wachovia Securities gives the stock a five-star rating.
Other positive attributes of the company include its debt to equity ratio, currently at a low 0.22 compared to a 0.81 industry average and its quarterly growth rate is expected to be between 15 and 30%.
Trading Strategy:
A covered call strategy provides income that helps cushion, but does not eliminate, the downside risk of stock ownership. As a tradeoff for providing premium income, the strategy limits the potential upside return. The option writer would only incur a loss if the underlying security dropped below the break-even price. (This is referred to as the downside protection when a position is established).
If you believe Lance is a solid company over the long term, several hundred shares could be purchased and call options could be written every month on the stock.
Potential Trades:
All of the following option trades have 57 days until expiration. Lance Inc. is currently trading at $20.14. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| Covered Call – LANCE INC (LNCE) $ 20.14 (57) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UEWDW | 07 APR $17.5 | $2.90 | 14.40% | 1.30% | 1.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UEWDD | 07 APR $20 | $1.15 | 5.70% | 5.30% | 5.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The first covered call trade, an in the money covered call, offers 14.4% downside protection and a potential profit of 1.3% if the stock remains unchanged or rises. The net cost of this trade, per 100 options, is $1,726.00.
The second covered call trade, an in the money covered call, offers 5.7% downside protection and a potential profit of 5.3% if the stock remains unchanged or rises. The net cost of this trade, per 100 options, is $1,899.00.
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.
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[tags]David V. Singer, Jonathan Feeney, Wachovia Securities, LNCE, Lance Inc., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]