Monday, February 23, 2009
Establish General Electric Covered Calls
A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of General Electric Company (GE) covered calls.
At its current price, GE is an excellent value. It now trades at a price/sales ratio of only 0.5 and a P/E ratio of only 7.2 in relation to the estimated 2009 depressed earnings of $1.24. It is this advisor's strong conviction that these valuations are much too low for this stalwart, high-quality company. GE's price could easily double or triple in price over the next two to three years. Additionally, as a result of the recent rapid decline in the price of GE, the current implied volatility for the Mar09 $10 strike price call option has risen to an amazingly high 105. For these reasons, GE stock was acquired today as a timely foundation stock addition to the Covered Calls Advisor Portfolio.
A summary of the transactions is as follows:
Established General Electric Company Covered Calls for Mar09:
02/23/09 Bought 1000 GE @ $8.96
02/23/09 Sold 10 GE Mar09 $10.00 Calls @ $.63
Absolute Return if Unchanged: +7.0%
Annualized Return If Unchanged (ARIU): +98.3%
Absolute Return if Exercised: +18.6%
Annualized Return If Exercised (ARIE): +261.7%
Downside Breakeven Price Point: $8.33
Downside Breakeven Protection: 7.0%