Tuesday, September 7, 2010

Establish Guess? Inc. Covered Calls

A new covered calls position was established in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Guess? Inc.(GES) covered calls. GES was one of the covered calls positions that was called away last Friday at Sep2010 options expiration and today it was decided to re-establish a new position for Oct2010 expiration as follows:

Established Guess? Inc.(GES) Covered Calls for Oct2010:
09/22/2010 Bought 300 GES @ $37.75
09/22/2010 Sold 3 GES Oct2010 $40.00 Calls @ $.55

Guess?, Inc. designs, markets, distributes and licenses its lifestyle collections of contemporary apparel and accessories for a style-conscious 18-to-32-year-old target audience of men and women around the world. In addition to wholesale and retail distribution channels, GES operates in 67 countries via its licensing and distributor partnerships. Apparel and accessories design teams are located in California in the U.S., and in Florence and Bologna, Italy. It offers collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets, and knitwear. The company also grants licenses to manufacture and distribute a range of products that include eyewear, watches, handbags, footwear, kids' and infants' apparel, leather apparel, swimwear, fragrance, jewelry, intimate apparel, and other fashion accessories. Guess , Inc. markets its apparel under various trademarks, including GUESS, GUESS , GUESS U.S.A., GUESS Jeans, GUESS and Triangle Design, MARCIANO, Question Mark and Triangle Design, a stylized G and a stylized M, GUESS Kids, Baby GUESS, YES, G by GUESS, GUESS by MARCIANO, and Gc. The company sells its products through retail, wholesale, e-commerce, and licensing distribution channels. Guess operates 425 stores in North America and 96 stores abroad; licensees and distributors operated another 594 non-North American stores.

The Buy Alerts spreadsheet below shows that GES is an attractive value at this time since the total points rating of 16.40 is above the Covered Calls Advisor's desired "Buy" threshold of 16.0. Also very importantly, at its current price, the growth potential of the Guess brand seems under-appreciated by investors based on its potential growth drivers related to: (1) rapid expansion in Asia; (2) expanding new product categories; and (3) potential new store formats.

Note: For expanded view, left click on the spreadsheet above.

Some possible overall performance results(including commissions) for the Guess? Inc.(GES) transactions would be as follows:
Stock Purchase Cost: $11,333.95
= ($37.75*300+$8.95 commission)

Net Profit:
(a) Options Income: +$153.80
= (300*$.55 - $11.20 commissions)
(b) Dividend Income: $0.00
(c) Capital Appreciation (If stock price unchanged at $37.75):
-$8.95 = ($37.75-$37.75)*300 - $8.95 commissions
(c) Capital Appreciation (If exercised at $40.00): +$666.05
= ($40.00-$37.75)*300 - $8.95 commissions

Total Net Profit(If stock price unchanged at $37.75): +$144.85
= (+$153.80 +$0.00 -$8.95)
Total Net Profit(If stock price exercised at $40.00): +$819.85
= (+$153.80 +$0.00 +$666.05)

Absolute Return if Unchanged at $37.75: +1.3%
= +$144.85/$11,333.95
Annualized Return If Unchanged (ARIU) +19.4%
= (+$144.85/$11,333.95)*(365/24 days)

Absolute Return if Exercised at $40.00: +7.2%
= +$819.85/$11,333.95
Annualized Return If Exercised (ARIE) +110.0%
= (+$819.85/$11,333.95)*(365/24 days)