Stock Option Investment Advice

Tata Motors to Introduce $2,500 Car – Auto Industry Covered Calls

Tata motors (TTM), an Indian auto manufacturer whose name is becoming ever more ubiquitous, is likely to unveil an exciting new car this week at the annual auto show in Delhi. Sure the stock plummeted 5.5% in trading today and the car is reported to have the power of an aging Chihuahua, but there is a palatable excitement in the air.

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The excitement is because the car will have a sticker price of $2,500. A consumer can’t even get Adaptive Cruise Control or High Performance Brakes on their Jaguar for $2,500; Tata has been named as the most likely company to purchase Jaguar from Ford (F).

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The car would not meet American emission standards, so will likely only be sold in India and other developing countries. The New York Times reported auto expert Daryl Rolley as saying, “It’s basically throwing out everything the auto industry had thought about cost structures in the past and taking out a clean sheet of paper and asking, ‘What’s possible?’ In the next five to 10 years, the whole auto industry is going to be flipped upside down.”

The car has been described as a very small and curvy 5-door sedan. The trunk will have the capacity to carry a bag of groceries, a briefcase and little more. It may resemble a slightly larger version of the Smart car or a small version of the Scion van. The engine is reported to have around 30 horsepower. As a reference, this is the power of a small outboard motor or an average sized go-cart.

Tata motors reduced the price of the vehicle by reducing the raw materials used in production. For example, the car will feature a hollow steering column and bearings rated to wear out significantly faster at speeds above 45 mph. The car boasts a spectacular 59 mpg.

Osamu Suzuki, the chairman of Suzuki motors, expressed extreme skepticism about some of the early rumors surround the car, “There is a slight lack of clarity about this $3,000 figure. Does it refer to the actual retail price? Or does it refer to the cost of materials that are used in preparing this automobile? It’s not quite clear. … There’s not much clarity about which standards the $3,000 car is aiming to fulfill. Will airbags be included? Will seat belts”

Looking at this news from an options trading perspective:
Tata motors has a P/E of around 13 (industry average is around 16), a gross margin of 28% (industry average is 18%) and its net income is around $600M (Ford and GM lost around $45B last year). It seems, if you believe the hype and the numbers on the surface, this could be a company on the rise.

Potential Trades:
Included in the search results below are covered call opportunities with some of Tata’s competitors.

These trades were easily found by creating a custom list with the appropriate stock symbols and then by running a simple SmartSearchXL. PowerOptions can easily provide you with these tools too, so you can begin identifying lucrative trades

All of the following February trades have 39 days until expiration, the March trades have 74 days until expiration, and the April trades have 102 days until expiration.

Power Options Covered Call Search Data – Auto Manufacturers
Symbol Stock
Option Option
TTM 18.85 (-1.10) TTMBD 08 FEB 20.0 (39) 0.5 18.35 2.7 2.7 9
GM 23.30 (-0.36) GMCY 08 MAR 27.5 (74) 0.77 22.53 3.3 3.4 22.1
GM 23.30 (-0.36) GMCE 08 MAR 25.0 (74) 1.44 21.86 6.2 6.6 14.4
TTM 18.85 (-1.10) TTMDD 08 APR 20.0 (102) 1.15 17.7 6.1 6.5 13
GM 23.30 (-0.36) GMBE 08 FEB 25.0 (39) 1 22.3 4.3 4.5 12.1
DAI 83.87 (-2.59) DAIDR 08 APR 90.0 (102) 3.3 80.57 3.9 4.1 11.7
GM 23.30 (-0.36) GMCX 08 MAR 22.5 (74) 2.56 20.74 11 8.5 8.5
DAI 83.87 (-2.59) DAIDQ 08 APR 85.0 (102) 5.3 78.57 6.3 6.7 8.2
TM 103.04 (-1.43) TMDA 08 APR 105.0 (102) 4.6 98.44 4.5 4.7 6.7
GM 23.30 (-0.36) GMBX 08 FEB 22.5 (39) 2.13 21.17 9.1 6.3 6.3
DAI 83.87 (-2.59) DAIBQ 08 FEB 85.0 (39) 3.6 80.27 4.3 4.5 5.9
DAI 83.87 (-2.59) DAIDP 08 APR 80.0 (102) 8.1 75.77 9.7 5.6 5.6
TTM 18.85 (-1.10) TTMDW 08 APR 17.5 (102) 2.25 16.6 11.9 5.4 5.4
TM 103.04 (-1.43) TMDT 08 APR 100.0 (102) 7.4 95.64 7.2 4.6 4.6
GM 23.30 (-0.36) GMCD 08 MAR 20.0 (74) 4.15 19.15 17.8 4.4 4.4
HMC 31.55 (-0.95) HMCDF 08 APR 30.0 (102) 2.8 28.75 8.9 4.3 4.3
DAI 83.87 (-2.59) DAIDO 08 APR 75.0 (102) 11.5 72.37 13.7 3.6 3.6
(For more details click the ticker symbol above)

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[tags] New York Times, Scion, F, Ford Motor Co., TTM, Tata Motors Ltd., covered call investment strategy, investment strategy, options trading, poweroptions, stock symbols [/tags]

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