US Income Strategy Recommendation: Lowe’s Companies Inc (LOW)

Posted on January 18th, 2010 admin
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The Income Strategy is an extremely powerful portfolio strategy that incorporates a combination of Stock and Options. It is designed to produce a consistent monthly income while providing capital protection for the portfolio.

The Income Strategy is very popular with Self Managed Super Fund (SMSF) and longer term wealth building individuals.

This is an Income Strategy Recommendation for investors looking to invest in the US market. The recommendation is buy LOW shares at a discount to market. The recommended trade is to sell put options on LOW with the intent to purchase the shares. This recommendation is designed for investor looking to generate monthly income with capital protection. Instead of buying LOW shares today at market at $22.91 we can place this trade which gives an equivalent entry price at $21.95 a discount of 4.2% and a price I am happy to buy the shares at.

Trade

  • Sell 44 contracts LOW January $22.50 Puts   @ 80 cents  
  • Buy 44 contracts LOW January $20.00 Puts   @ 25 cents

Net Credit 55 cents

Shares per contract = 100

Trade Summary

Maximum Profit – $2420 USD

Maximum Loss – $8580 USD

 Breakeven – $21.95

 Return on Share Value – 2.44%

 Annualised Return on Share Value – 29.28%

 Return on Risk (ROR) – 28.21%

If exercised we will purchase 4,400 shares at $22.50 which is a trade value of $99,000. When entering this trade you need to be aware and able to purchase the shares if exercised.

Brief Overview

Lowe’s Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States and Canada. The company provides a range of products and services for home decoration, maintenance, repair, remodelling, and property maintenance. It offers home improvement products in various categories, such as appliances, lumber, paint, flooring, building materials, millwork, lawn and landscape products, fashion plumbing, hardware, lighting, tools, seasonal living, rough plumbing, outdoor power equipment, cabinets and countertops, nursery, rough electrical, home environment, home organization, and windows and walls.

Reason for Trade

  • Technical Analysis – LOW is a buy at these levels with strong support at $22.00 and our breakeven is below this level.
  • Return on Risk above 25%
  • Capital Protection at 91.12%

Chart

 

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