Golf Investing – Hole In One or Triple Bogey – Covered Calls

With the Masters Golf Tournament kicking off this week, we’ll look at investing in the Golf industry.

The sport of golf is several hundred years old. The exact birth of the game of golf is debatable. Generally, the game of golf is considered to have originated in Scotland, but some suggest it may have originated in China or the Netherlands, several hundred years before appearing in Scotland.

Nevertheless, the modern game of golf has been around for many years and has been around much longer than some of the other popular sports like basketball and football.

But, is an investment in the golf industry a prudent one? In an article in the Wall Street Journal, (online.wsj.com), it is speculated the golf industry’s approach to growing its business has not worked, as the industry has been stagnant or in decline for the last several years. The golf industry’s primary approach for growth has been to attract more people to the game, but this hasn’t worked as just about the same number of people leave the sport every year as take up the sport. The Wall Street Journal discusses some avenues for the golf industry to break out of its growth slump, bifurcation (two equipment standards – one for amateurs and one for professionals), and speedier/less costly courses.

With the baby boomers soon to start retiring in large numbers, the golf industry has a bright future. The golf industry will revamp itself to accommodate the retiring baby boomers and the new young “duffers” as well. And, there are more Tiger Woods caliber of players in the pipeline to give the game of golf a lot of marketing glitz and excitement.

Unfortunately, there aren’t a lot of golf-oriented companies to invest in. Many of the top tier golf related companies are private, Acushnet, Karsten Manufacturing, Taylor Made-Adidas Golf, Edwin Watts Golf and The Sports Authority, for example. And the stagnation/decline of the golf industry over the last few years has resulted in a plethora of golf related companies being sent to the over-the-counter “pink sheets”, which should be avoided.

But there are a handful of golf related companies worthy of consideration as an investment, DKS, ELY and GOLF. Using PowerOptions stock options search tools we searched for covered calls stock options positions for these companies.

Stock options are not available for GOLF, but are available for ELY and DKS. The ELY and DKS covered calls positions are both out-of-the-money with potential % if unchanged returns of 6% (232 days) and 3.2% (50 days), respectively and downside protection of 5.7% and 3.1%, respectively. As long as the price of the company’s stock does not decrease more than its downside protection, the position will remain profitable.

The % if assigned potential returns for ELY and DKS are 17.5% and 5.7%, respectively. The potential % if assigned return requires the price of the stock to increase to or above the strike price of the option at options expiration in order to be fully profitable.

Competitors:
Competitors for ELY include: Acushnet Company (private), Karsten Manufacturing Corporation (private), and TaylorMade-adidas Golf (private).
Competitors for DKS include: Foot Locker Inc. (FL), Wal-Mart Stores Inc. (WMT), and The Sports Authority, Inc. (private).
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