This week’s spotlight for option opportunities looks at
International Business Machines (IBM), whose earnings for 2011 are now estimated by Value Line analyst Theresa Brophy at $12.95 a share, which would be an increase of somewhat over 12%.
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This week, we review the performance of our option and covered call ranks for our September quarter evaluation period, which ended 9/27/2011. This definitely was a good time to be “long volatility” (and, hopefully, to be a subscriber to our service).
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This week, we kick off a new series of spotlights on option opportunities on individual stocks, starting with Xerox Corp (XRX). With the stock down 33% from end-June levels, and with a P/E ratio this is less than half the market’s, Xerox is steeply undervalued, according to our analysis. In looking at Xerox options, we see opportunities for covered call writes, cash-covered put writes, and outright longer-term call purchases.
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This week, using calls on Intel Corporation (INTC) as examples, we show a suggested hedge for the underlying stock under current market conditions. Our model, finds some Intel options to be underpriced, and some others to be overpriced. You can get an edge by using these “mispricings” to your advantage when building a hedge.
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With the recent sharp decline in the stock market, we need to roll 16 of the 20 short call positions in our portfolio to lower strike prices and/or to later expirations. The bad news, of course, is that the portfolio is down since quite a bit since we last rolled our positions (on 7/13/2011). The good news is that we are better off than the S&P 500 and the other benchmarks.
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This week we are following up on our report of 3/03/2011, “What’s Free (or Almost Free) from the Exchanges,” with a review of the attractive free offers from commercial websites in the options business. Some of these sites offer free trials, while others allow you to register for free email newsletters. Often, the information offered at these sites can be used in conjunction with The Value Line Daily Options Survey to help you with your option trading and portfolio management.
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Much of what you are told about covered call writing, even by many so-called “experts,” is wrong – or, at least, less than 100% accurate. This week, we explore ten myths about covered call writing that you may have heard. Perhaps the key word here is “always,” as in always explore your alternatives - rather than always pursue exactly the same strategy.
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This week, we review the performance of our option and covered call ranks for our quarterly evaluation, period which ended 6/28/2011. As with the March quarter, our common ranks performed very well (i.e., showed perfect, or near-perfect, rank order). Additionally, our option model’s ability to differentiate between overpriced and underpriced options clearly added to the results of our option and covered call ranks.
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The mere mention of options can send shivers down the spine of investors who have only heard about them through the news. To be sure, when used imprudently, options can do a great deal of damage to a portfolio. But, when used prudently, options can be a valuable addition to an investor’s toolbox. Covered calls are probably the best starting point for adding options to your portfolio.
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