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Ernie Zerenner, co-founder of PowerOptions, has been an active stock trader for over 40 years and an avid options trader for more than 20 years. Each Saturday he would look in the newspaper to find options with the best return Covered Calls. This process would literally take hours. First he had... More
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  • Global Warming Good For Coca-Cola Enterprises

    Coca-Cola Enterprises (NYSE:CCE), one of the world's largest Coca-Cola bottlers, has been having a weather problem, as Chairman and CEO John Franklin Brock noted in the company's Q1 2013 earnings call held on April 25, 2013. Mr. Brock indicated the summer of 2012 was the wettest and coldest in 100 years for the company's territories, and the company's fortunes were negatively affected as a result. When the weather is cold and wet, consumers are more inclined to drink hot coffee, tee and chocolate than Coca-Cola related products. But, with all the talk of global warning, Coca-Cola Enterprises' weather related issue sounds like a good problem to have, because as the globe increasingly warms, more consumers will drink Coca-Cola related products.

    Coca-Cola Enterprises is one of Coca-Cola's largest bottlers and markets products which include energy drinks, still and sparkling waters, juices and juice drinks, sports drinks and teas. The company serves customers in Belgium, France, Great Britain, Netherlands, Luxemburg, Norway and Sweden. The company recently discussed adding Germany to its list of territories, but decided not to, but left open the potential for a future presence in country.

    In the company's most recent quarter, sales of $1.9 billion were reported which represents a negative growth of 1% year-over-year. Also on a negative note, volume decreased 1.5% with price per case increasing 2% and cost of sales increasing 3%. Sparkling beverages were down 2% with Coca-Cola brands in particular down 2%, however the Coca-Cola Zero branded products were up 3.5% and energy brands were up 4%.

    Coca-Cola Enterprises is planning on adding Vanilla Coke and Cherry Coke Zero to its marketed brands and plans on creating a specific program to boost Coke Zero which involves sampling, communication and pricing.

    At the DbAccess 10th Annual Global Consumer Conference held on June 11, 2013, Mr. Brock noted macroeconomic issues aren't worse, but haven't improved either. The competitive environment in Great Britain has improved with the Diet Coke franchise in Great Britain noted as one of the most significant in the world. Coke Zero is performing very well, especially in France. The company has a lot of room to grow, as the per capita consumption of Coca-Cola products in Europe is half of that in the U.S. The company maintains a long range objective of 4% to 6% of revenue growth and 6% to 8% of profit growth.

    Mr. Brock presented that the company is facing a dynamic and challenging macro-environment with volatile commodity costs. Additionally, the company is dealing with evolving consumer tastes and preferences, with increasing focus on health and well-being needs, of which the company is continually working to meet.

    Coca-Cola Enterprises stock price has been on an upward trajectory for most of the year, with a pull-back over the last month or so, as shown below:

    (click to enlarge)

    The company has an attractive Price-to-Sales (P/S) ratio of 1.3 and a reasonable Price-to-Earnings (P/E) ratio of 16, which also compares nicely to its competitors whereas Pepsico (NYSE:PEP) has a P/S ratio of 1.9 and a P/E of 21.

    With the recent pullback in stock price, the potential for increased European per capita consumption and the potential for increased sales with global warming, an investment is considered for the Coca-Cola Enterprises. However, a protective position is considered, as the macroeconomic environment in Europe is still tentative at best. A protective strategy to consider is the married put stock option, which provides for unlimited upside with limited downside. The limited downside is performed via a long put option purchased against a long position for the stock. The option expiration for the put option is typically selected several months in the future in order to reduce the per-day cost of the put option "insurance".

    Using PowerOptions, a number of married put positions were found for Coca-Cola Enterprises for option expiration in January of 2014 as shown below:

    The married put position using the 2014 Jan 36 put option looks attractive, as it has a maximum potential loss of 5.4% before considering expected dividend payments. However, after expected dividend payments during the holding time are taking into consideration, the maximum potential loss is reduced to 4.4%, so even if the price of the stock drops to zero, the maximum loss which can be sustained is 4.4%. The details for entering the Coca-Cola Enterprises married put position are shown below:

    Coca-Cola Enterprises Married Put Position

    • Buy CCE stock (existing or purchased)
    • Buy CCE 2014 Jan 36 put at $3.10

    A profit/loss graph for one contract of the Coca-Cola Enterprises married put position is shown below:

    (click to enlarge)

    For an increasing stock price, the value of the married put position also increases. For a decreasing stock price, the loss of the married put position is limited to 4.4%. And, if the price of the stock increases to above the $36 strike price of the put option, then income methods may be applied in order to reduce risk and receive income as taught by RadioActiveTrading.com.

    Look forward to hearing your comments below!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: CCI, pep
    Jul 07 2:30 PM | Link | Comment!
  • Stars Aligning For Monsanto

    The stars are aligning for Monsanto (NYSE:MON) as the company should do very well this year due to last year's drought, as farmers try to make up for the lost year. Secondly, the company has agreed to a licensing deal with its rival DuPont (NYSE:DD) in which the companies agreed to dismiss the various lawsuits between the two companies. And thirdly, the "Monsanto Protection Act" was recently snuck into the federal government's funding bill which enables the USDA to override judges who try to stop Monsanto from selling its genetically modified seeds.

    The company is expecting double-digit profit growth in its corn business and as a result increased its guidance in its 2013 Q1 earnings call held on January 8, 2013. The company's most significant quarters, Q2 and Q3, are in full-swing and approaching and we'll find out more about Q2 when the company reports results on April 3, 2013.

    Monsanto is well positioned for growth over the next year and the next decade, as the company invests in technology for seed, plant and field. Also, Monsanto's stock price has been on a nice upward trajectory over the last year as shown below:

    (click to enlarge)

    With this setting, the company could report robust earnings next week and a corresponding increase in stock price, and as a result a long straddle stock option position is considered. The long straddle stock option position provides a profit if the underlying stock price moves significantly up or down in price. The drawback for the position, is the position results in a loss, and potentially a large loss, if the stock price does not move significantly, so this position should only be considered with "Vegas capital." The long straddle can be entered by purchasing a long put and call option with the same strike price and the same month of expiration.

    Using PowerOptions, a long straddle was found for the company with April expiration as shown below:

    The position results in a profit if the price of the stock increases to above $110.33 or if the price drops below $99.67. The details for entering the Monsanto long straddle position are shown below:

    Monsanto Long Straddle Position:

    • Buy 2013 April 105 Put at $2.55
    • Buy 2013 April 105 Call at $2.78

    A profit/loss graph for one contract of the Monsanto long straddle is shown below:

    (click to enlarge)

    As shown, for a significantly increasing or decreasing stock price, the position results in an ever increasing profit.

    Look forward to your comments below!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: MON, dd
    Mar 29 4:06 PM | Link | Comment!
  • Oracle Walking On The Cloud

    (This is a repost of an article which was posted on 3/15/2013 and was accidentally deleted, the position in the article made a profit of over 100%)

    Oracle (NYSE:ORCL) reported in its Q2 2013 earnings call held on December 18, 2012 that its could-related business segment is doing very well with quarterly revenue of $230 million. Mark V. Hurd, President and Director, reported wins for the company's cloud products which included Abercrombie & Fitch (NYSE:ANF), Expedia (NASDAQ:EXPE), Macy's (NYSE:M), T. Rowe Price (NASDAQ:TROW), United Continental Holdings (UAUA), U.S. Bancorp (NYSE:USB), Whirlpool (NYSE:WHR) and Xerox (NYSE:XRX). Mr. Hurd further noted product wins for its Exalogic Elastic Cloud software with Chevron (NYSE:CVX), Vodafone (NASDAQ:VOD) and Wal-Mart (NYSE:WMT).

    For its software license and cloud related segment, Oracle reported broad-based strength and balance with double-digit growth in all of its regions. Year-over-year quarterly revenues for software licenses and cloud related products for the Americas were up 22%, Asia Pacific up 13% and Europe/Middle East up 12%. Lawrence J. Ellison, CEO, Co-Founder and Director, noted the company's Java business is booming with growth of over 34% for the quarter. Mr. Ellison further commented that the acquisition Sun Microsystems was the most strategic and profitable acquisition that Oracle had ever performed. On a negative note, Quarterly hardware revenues came in at $734 million which represents negative growth of -23%. Mr. Ellison further noted that the company is almost complete with downsizing in its hardware product segment and plans to start growth its hardware business in the near future.

    Oracle reported total revenue for the quarter of $9.1 billion which represents growth of 5% year-over-year.

    For the company's Engineered Systems product offering, Mr. Hurd noted product wins at China Mobile (NYSE:CHL), Facebook (NASDAQ:FB), Samsung and Time Warner Cable (NYSE:TWC) and also indicated the company plans to double the Engineered Systems business. Mr. Hurd further noted product wins for its Business Intelligence product Exalytics with Activision (NASDAQ:ATVI), City of Chicago, Deloitte & Touche and WellPoint (NYSE:WLP).

    Although Oracle's Price-to-Sales (P/S) ratio of 5 looks expensive, its Price-to-Earnings ratio of 17 looks fair considering the company's prospects for high growth. Oracle's stock price has shown fairly steady price appreciation over the last nine months as shown below:

    (click to enlarge)

    With Oracle set to release is third quarter results on Wednesday March 20, 2013 and with the company's prior excellent software/cloud-related performance, the company could report better than expected results. Due to this, a long straddle stock option position is considered for the company. A long straddle returns a profit if a stock price increases or decrease significantly. However, the position experiences a loss, and a potentially a large loss, if the stock price remains stagnant, therefore the long straddle should only be used with "Vegas" capital. The long straddle can be entered by purchasing a long put and a long call option with the same strike price and the same month of expiration.

    Using PowerOptions, a couple of long straddle positions for April 2013 expiration were found as shown below:

    Since a positive earnings surprise is expected for Oracle, the long straddle using the $36 strike price is selected, as it has the lower break-even price of $37.91. The details for entering the selected long straddle for Oracle are shown below:

    Oracle Long Straddle Position:

    • Buy ORCL 2013 Apr 36 Put at $0.74
    • Buy ORCL 2013 Apr 36 Call at $1.17

    A profit/loss graph for one contract of the Oracle long straddle position is shown below:

    (click to enlarge)

    For a stock price below $34.09 or above $37.91, the position is profitable and for a price between $34.09/$37.91 the position results in a loss.

    Look forward to hearing your comments below!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: ORCL, cloud
    Mar 22 2:12 PM | Link | Comment!
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