With analysts predicting the Feds will not cut interest rates because of inflation woes and Alan Greenspan saying publicly there is a 33% chance of recession, it leaves little for investors to be optimistic about. Noting this, we will take a look at promising small cap covered call option opportunities.
Audio Podcast:
An audio podcast of this article is available at: poweropt.com/podcasts/2007_03_19_SmallCaps.mp3
Barry James, a portfolio manager for the conservative Golden Rainbow Fund plugged three stocks in a recent interview on Jim Cramer’s Thestreet.com online network in a video entitled “Small Cap Standouts.”
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Although James noted the three small caps, American Electric Power, American Physicians Capital and CNA Surety, he was a little bearish on the economy saying, “We saw in the last part of last year, the economy was slowing below trend line growth.” He went on to say the American economy would be “definitely below trend growth this year.” Both American Physicians Capital and CNA Surety do not offer options.
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Small Caps with Potential:
American Electric Power (AEP) a utility stock operating in the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. Mr. James noted this company as a potential growth and profit magnet.
Encore Wire Corporation (WIRE) is a company manufacturing copper electrical wire. It supplies residential wire for interior electrical wiring in homes, apartments, and manufactured housing. Although the housing slump may be affecting its price, the company has a P/E of around 5 and a number of analysts are calling it a “strong buy.”
Georgia Gulf Corporation (GGC) makes chemicals used for construction, engineering plastics, and paper production applications. It too has a P/E of around 5. In addition, there were heavy insider acquisitions in late February.
Competitors:
Competitors for AEP include: Centerpoint Energy Inc. (CNP), Duke Energy Corp. (DUK), Entergy Corp. (ETR), American Commercial Lines LLC (ACLI), Constellation Energy Grp (CEG), CMS Energy Corp. (CMS), Dominion Resources Inc. (D), DPL Inc. (DPL), Dynegy Inc. (DYN), Aquila Inc. (ILA), PG&E Corp. (PCG), PNM Resources Inc. (PNM), Reliant Resources Inc. (RRI), Texas Utilities Co. (TXU), and Xcel Energy Inc. (XEL).
Competitors for WIRE include: General Cable Corp. (BGC), Cerro Wire & Cable Co., Inc. (private), and Southwire Company (private).
Competitors for GGC include: Dow Chemical Co. (DOW), Polyone Corp. (POL), and Formosa Plastics Corporation (private).
Potential Trades:
All of the following option trades have 61 days until expiration. AEP is currently trading at $45.97, WIRE is currently trading at $24.41 and GGC is currently trading at $17.65. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| PowerOptions covered call search (61 days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
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| AEP | $45.97 | AEPEI | 07 MAY $45.00 | $2.00 | 4.40% | 2.30% | 2.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WIRE | $24.41 | EJOEX | 07 MAY $22.50 | $2.75 | 11.30% | 3.90% | 3.90% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WIRE | $24.41 | EJOEE | 07 MAY $25.00 | $1.40 | 5.70% | 6.10% | 8.60% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GGC | $17.65 | GGCEW | 07 MAY $17.50 | $1.40 | 7.90% | 7.70% | 7.70% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GGC | $17.65 | GGCED | 07 MAY $20.00 | $0.55 | 3.10% | 3.20% | 17.00% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The listed covered call options offer an array of downside protection between 3.1 and 11.3% and offer potential profits ranging from 2.3 to 17.0% (61 days). All of the trades listed above will require around $1,500 to $4,500 to enter a position.
A riskier, but somewhat less capital intensive, alternative is a bull call debit spread. For example, a bull call debit spread may require less than a $1,000 in capital to enter a similar position as those described above. If you wish, you can research other possible trades with the suite of tools found at PowerOptions.
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] Alan Greenspan, Barry James, Golden Rainbow Fund, Jim Cramer, Thestreet.com, American Physicians Capital, CNA Surety, Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, West Virginia, Cerro Wire & Cable Co., Inc., Southwire Company, Formosa Plastics Corporation, ACLI, American Commercial Lines LLC, AEP, American Electric Power Co. Inc., BGC, BICCGeneral, CEG, Constellation Energy Grp, CMS, CMS Energy Corp., CNP, CenterPoint Energy Inc., D, Dominion Resources Inc., DOW, Dow Chemical Co., DPL, DPL Inc., DUK, Duke Power Co., DYN, Dynegy Inc., ETR, Entergy Corp., GGC, Georgia Gulf Corp., ILA, Aquila Inc., PCG, PG&E Corp., PNM, PNM Resources Inc., POL, PolyOne Corp., RRI, Reliant Resources Inc., TXU, Texas Utilities Co., WIRE, Encore Wire Corp., XEL, Xcel Energy Inc., covered call investment strategy, covered call options, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]