Dominion Resources (D) is a very bullish stock and has been all through 2011 and into 2012. We believe it may move another 20% before it slows down. We have found a nice short term options play with nice upside potential we would like to share with you.
Dominion Resources, Inc., together with its subsidiaries, engages in producing and transporting energy in the United States. It operates in three segments: DVP, Dominion Generation, and Dominion Energy.
The majority of its revenue (55.4%) comes from its Dominion Generation division that sells electricity to other utilities. With plants located in Virginia, West Virginia and North Carolina, it uses a combination of coal, nuclear, gas, and oil and renewables to generate power.
One of the struggles that Dominion will face is growing political awareness of the risks of global warming is resulting in increasing governmental pressure for utility companies to reduce emissions. Cross-Tate Air Pollution Law could have an impact upon Dominion. This Law calls for new standards for clean air in a decade, designed to cut power plant emissions that are carried high into the air and across state lines, often settling on forests and lakes thousands of miles away. It may raise utility costs by up to 15% on the consumer. This will not be coming until the second half of the 2012 so we will see how it affects Dominion. The company plans to spend $3.4 billion by 2015 anyway on new clean air technologies to reduce particulate and toxic emissions.
Investing in Dominion
For 2012, Dominion is planning to hike its dividend rate by 7.1%, from $1.98 to $2.11 per share. They have averaged 3.9% in the past as a solid investment for dividend -minded investors. We are still bullish on Dominion and believe they can grow another 20%. With it bouncing off the lower resistance trend line, we like a short term options play here as well as a medium term investment up to 58.
The Options Play
A Bull Call Spread here looks like it could work nicely. With this strategy we will create a debit in our account. We would like to look at the April options anticipating reaching its peak by then. We would expect it to hit about 56 to57 if it continues. Here's the play:
- Buy April 2012 '55' call option (presently priced at $0.15)
- Sell an April '60 call option (presently priced at $0.05)
This will give us a $0.10 debit to start. If the stock continues to move like we think it will, by April we can make a nice profit off a simple inexpensive play like this. Since the analysts are looking for a move to 58 we will stop our trade at the 56.5 level just to look at what it could do for us.
- Net Debit: $0.10
- Max Risk: $0.10
- Maximum Reward (56.50 - 55.00) - $0.10= $1.40
This is not a bad play for those who believe the stock will continue moving up. When putting together an options play, always make sure you are doing your own personal research before you make a play.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.