Chinese stocks dropped Monday as the government made moves to chill the overheated market. The Shanghai Composite Index’s 8.3% plummet marked the largest one-day drop since the 8.8% drop on February 27, 2007. Since last Tuesday, the Shanghai index has dropped 15 percent.
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Beijing has seen advances of more than 50% this year. The rapid profits have attracted millions of Chinese investors who are dumping their savings into the market. Generally, foreign investors are not allowed to own Chinese stocks and the Chinese are not allowed to invest abroad. The drop also led to Alan Greenspan’s recent Chinese-tailored “irrational exuberance” speech.
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Because the correction was expected and because Jim Cramer and a host of other top stock analysts still agree the largest gains can be made with companies with a dominant overseas presence, we will look at tailoring this news to present readers with attractive option investing ideas with a Chinese tie-in.
Additional Information:
As a note, PowerOptions has trading experts available to help investors more fully understand the option trading process. They can be reached, toll free, at 877-992-7971. There are additional resources on the PowerOptions website for investors to learn more about the fun and exciting world of option investing. An Introduction to Options and Futures is a great resource article as well as Covered Call Trading Rules of Thumb.
Two Chinese Exchange Traded Funds:
Two common and solid Chinese Exchange traded funds are iShares FTSE/Xinhua China 25 index (FXI) and PowerShares Golden Dragon Halter (PGJ). These funds are similar in structure to an S&P 500 index fund.
Stocks with Eastern ties:
Below are six option-able stocks listed in a Motley Fool article published online last Friday. These stocks were picked as a “sound investment” with “promising exposure to the Eastern nation.” For example, cash flow and low debt levels were two of the criteria for the list.
| Motley Fool Sound Investments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock | Unlevered Free Cash Flow (in millions) |
Debt/Capital Ratio |
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| Best Buy (BBY) | $632 | 9.40% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| American Oriental Bioengineering (AOB) | $24 | 5.90% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dolby Laboratories (DLB) | $102 | 1.60% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aluminum Corp. of China (ACH) | $772 | 12.80% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comtech Group (COGO | $21 | 4.50% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PetroChina (PTR) | $7,100 | 10.4% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Potential Trades:
All of the following option trades have 47 days until expiration. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| PowerOptions covered call Chinese Associated Stocks and Funds (47 days) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FXI | $113.93 | FJJGJ | 07 JUL $114.00 | $4.90 | 4.10% | 4.30% | 4.40% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PGJ | $23.52 | PGJGV | 07 JUL $22.00 | $0.50 | 8.30% | 2.00% | 2.00% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BBY | $49.36 | BBYGJ | 07 JUL $50.00 | $1.65 | 3.30% | 3.50% | 4.80% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| AOB | $9.97 | AOBGB | 07 JUL $10.00 | $0.75 | 7.50% | 8.10% | 8.50% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DLB | $33.89 | BLBGG | 07 JUL $35.00 | $1.10 | 3.20% | 3.40% | 6.70% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACH | $33.60 | ACHGG | 07 JUL $35.00 | $1.45 | 4.30% | 4.50% | 8.90% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COGO | $17.35 | UWKGW | 07 JUL $17.50 | $1.10 | 6.30% | 6.80% | 7.80% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PTR | $131.30 | PTRGF | 07 JUL $130.00 | $5.90 | 4.50% | 3.70% | 3.70% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Of the trades listed above, the one with the most flexibility percentage-wise is the American Oriental Bioengineering (AOB) trade. This trade offers 8.5% potential profit and 7.5% downside protection. However these are percentages and if the stock declines around $0.70, the investment begins to lose money.
The Comtech Group (COGO) and Best Buy (BBY) trades are also very attractive with their 7.8% and 4.8%, respectively, returns.
Competitors:
Competitors for DLB include: DTS Inc. (DTSI), Sony Corp. (SNE), and SRS Labs Inc. (SRSL).
Competitors for COGO include: Arrow Electronics Inc. (ARW), Avanex Corp. (AVNX), and Avnet Inc. (AVT).
Competitors for AOB include: China National Pharmaceutical Group Corporation (private), China Shineway Pharmaceutical Group Limited (private), and CK Life Sciences Int’l., (Holdings) Inc (private).
Competitors for PTR include: Chevron Corp. (CVX), CNOOC Ltd. (CEO), Sinopec Shanghai Petrochemical Co. Ltd. (SHI), and Sinopec Corp. (SNP).
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] Chinese, Shanghai Composite Index, Beijing, Alan Greenspan, Jim Cramer, Motley Fool, China National Pharmaceutical Group Corporation, China Shineway Pharmaceutical Group Limited, CK Life Sciences Int’l., (Holdings) Inc, ACH, Aluminum Corp. of China Ltd., AOB, American Oriental Bioengineering Inc., ARW, Arrow Electronics Inc., AVT, Avnet Inc., BBY, Best Buy Co. Inc., CEO, CNOOC Ltd., COGO, Comtech Group Inc., CVX, ChevronTexaco, DLB, Dolby Laboratories Inc., FXI, iShares FTSE/Xinhua China 25 ETF, PGJ, PowerShrs. Golden Dragon Halter USX China ETF, PTR, PetroChina Co. Ltd., SNE, Sony Corp. ADR, SNP, Sinopec Corp., an introduction to options and futures, covered call investment strategy, covered call trading rules of thumb, introduction to options, investment strategy, iron condor, option investing, poweroptions, stock option trading, stock options [/tags]