Dana’s (DAN) call option volume popped up on the radar yesterday, apparently somebody thinks Dana’s upcoming earnings report scheduled for November 3 will be positive.
Dana specializes in design and manufacture of axles, drive shafts and other related components for vehicle manufactures. Dana’s automotive customers haven’t been faring to well the last couple of years and neither has Dana.
With the recent “Cash for Clunkers” program, maybe some inventory has been cleared out and Dana has been able to sell some product this past quarter. And that’s probably how the upcoming earnings report will appear, good results this past quarter and maybe for the next quarter, but after that its pretty gloomy looking.
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Dana’s competitors include American Axle & Manufacturing (AXL), ArvinMeritor (ARM) and Magna International (MGA).
Dana’s stock price has been roaring over the last four months with an increase of about 600%. DAN is currently near its 52-week high, but well off of its two-year high in the $13 range.
There was a significant amount of volume in Dana’s December 7.5 call option yesterday. This call option was out-of-the-money which has a bullish look. All is not bullish as Dana’s November and December Strike of Pain is at 5 which is bearish. The Strike of Pain represents the strike where the stock options buyers will lose the most money and the stock options sellers will gain the most money at expiration.
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A covered call investing position for Dana for a November 5 call option looks attractive with a potential return of 4% and a timeframe for realization of only 24 days. The covered call investing position has downside protection of 22%, so as long as the stock price does not drop more than 22%, the position will be profitable. The call option of interest is the November 5 with ticker symbol DANKA.
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To enter the covered call investing position an investor would purchase the stocks in multiples of 100 shares for their trading portfolio and sell one call option for each 100 shares of stock purchased for their personal stock portfolio.
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[tags] axles, drive shafts, automotive, Cash for Clunkers, out-of-the-money, Strike of Pain, ARM, ArvinMeritor Inc., AXL, American Axle & Manuf. Hldgs. Inc., MGA, Magna Intl. Inc. [/tags]