Lorillard (NYSE: LO) has been selected by InvestorsObserver analysts as a stock that is an ideal candidate for a new covered call today. Buying the stock for $39.66 while simultaneously selling the June $40.00 call will result in a new position with a target return of 5.3%. Based on recent prices, this position will cost about $37.97, which is also the trade’s breakeven point. At that level, this covered call has 4.3% downside protection, while still providing a 5.3% return in 99 days as long as LO is above $40.00 on 6/22/2013. For comparison purposes only, this Lorillard covered call aims for an annualized return rate of 19.7%.
I'm only interested in selingl calls when I think LO is fully valued or if I don't think there's a catalyst for a move up in the near future which usually happens after an earning's announcement.
I'm short calls that expire today above 41 and I have no plans to short any more unless LO is trading above 42 in the near future and I'd only do it in my IRAs unless we see LO trading above 45. So for now I'll just enjoy the dividend, the current low price and the opportunity if give us to buy back massive amounts of stock through our share repurchase program-that's where the real money will be made.