An interesting trade idea that I just came across is a Covered Call on YRC Worldwide (YRCW). The trucking industry has had a great amount of consolidation and the charts are looking up. This trade is a bit  contrarian since it involves being long the U.S. trucking industry, which has been hard hit over the past year due to high fuel prices. However things are beginning to look better for this industry. We are starting to see lower prices at the pump which is always a positive for transportation but the biggest positive fundamental factor is the fact that there are not as many trucks on the road. Over the past year more than 2000 trucking firms have gone out of business, loosing up to 100,000 trucks, according to the American Trucking Association. The industry contraction has given the remaining companies better pricing power and tonnage rates are going up. The ATA For-Hire-Truck-Tonnage Index rose 1.3% in June and .5% in May. This is also an early cycle play, demand has not picked up yet but with a major reduction in supply some analyst feel that earnings have probably hit bottom in 2008. Time will tell but for now the charts also look very promising.

YRCW put in a low for 2008 on March 19^th at $10.99 and has moved sideways since with higher lows creating a gradual upward slope. The 20 & 50 day moving averages have crossed the 200 day and YRCW has been trading above the 200 day since August 5^th. It broke above a long term trend line in April and has developed a gradual upward trending slope. Based on the improving fundamentals and technical’s I constructed the following covered call on August 22, 2008:

Bought to Open (BTO) YRCW @ $17.80 per share

Sold to Open (STO) Sept 2008 $17.50 call (YUXJE) @ $1.50 per contract.

Called return: 6.86% Uncalled: 8.43%

I believe this company has some longer term trading potential and is one to watch. Any pick up on the demand side and companies in this industry will take off to the upside.

Larry Gaines is from callsandleaps.com. This information is for educational use only and is not financial advice.

Covered call writing is the most elementary and conservative of all option strategies. It is so conservative that it is the only option strategy allowed in retirement accounts (IRA).

The best way to look at covered call writing is to look at the option market as a business. The merchandise with which you run your business are stocks you hold in your investment portfolio. If you own common stock, you should be involved in the business of covered call writing. If you are not, you are letting your inventory go to waste. You are not opening your store for business.

For example, when you own rental property, you rent it and you want this rental income each and every month as part of your return on that investment. The same analogy can be made for the stock market. You must look at your stock investments as you would an investment property. If you buy a good property in a good position are you afraid of not getting your money back over the long term? Do you get a weekly valuation of the property and stress if that valuation is less than what you paid for it? No. You take a long term view and let time run its course and you collect your rent each month.

With covered call writing we you must understand that the stock prices of good companies go up and down just like real estate values.  If you purchase a good company with real earnings at a reasonable valuation and the stock falls, it is likely that eventually the stock price will go back to where it was when you purchased it. Even if it doesn’t, eventually you will make back all the money you invested in the stock by selling calls against it.

This is the mindset of a covered call writer. This is for educational use only and not financial advice.

About the author:

Larry Gaines has an extensive knowledge of the equity and option markets with over 25 years of trading experience. His experience includes managing one of the world’s largest international oil trading companies for over 10 years. Additionally, he managed a proprietary securities trading company that traded equity futures, bonds and foreign exchange. More recently, he traded and consulted for an international hedge fund trading equity futures, bond futures, and foreign exchange for 5 years. Larry first started trading options 20 years ago on cargoes of North Sea, Brent crude oil. His education includes a B.A. in Finance from The University of Texas.

 

We are glad to publish an exclusive article written by Tushar Mathur for MoneyBlog. Here it goes:

Role of personal financial planning - what is it all about? There is quite a bit to think about, but in its simplest form, it simply means asking a couple of relevant questions. One is “What is personal financial planning?” and the other is “What can it do for me?”. In any case, what should your personal financial plan comprise? Take the following information as a guide to your personal financial planning, and take into consideration your personal circumstances.

Essentially, personal financial planning will involve the following areas: budgeting, savings and investment, insurance, management of “big-ticket” items, cash-flow management. Any financial education book will tell you that a good financial plan starts with budgeting, and it is true. A budget allows you to decide how much you can spend and save. Of course, the main objective is to make sure that your expenses do not exceed your income. This will create a surplus that can be used for your savings and investment.

Savings and investment are quite the same, yet very different in what it they hope to achieve. Both are the same in the sense that they are”money left over” after your expenses are deducted from your income, and kept for certain objectives. But that is where the similarity ends. The difference lies mainly in their goals and time horizon. In essence, savings are liquid and can be withdrawn at a moment’s notice or within short time-frame. The returns from savings tend to be on the low range. Just think of how much your bank savings account earn you in terms of interest. Investments tend to be less liquid (depending on the type of investment instruments) and have a longer time horizon. The returns from investment tend to be higher than savings, however, so is the risk level. Depending on the type of investment, it is possible one may even lose the initial sum invested.

Proper personal financial planning should definitely include insurance. One main area of the role of personal financial planning is to make sure that one has the ability to carry on living in case of some unforeseen and unfortunate event. Basically, insurance provides a safety net to provide the necessary funds when one meets with events like accidents, disabilities or illnesses. One main contribution of insurance is that it helps provides peace of mind, knowing that enough funds are at hand in the event when things do not go the way it should be. This peace of mind leaves one with the energy and confidence to move forward.

You should consider carefully when purchasing “big-ticket” items. Some of these items could be essential like houses or cars for transportation. Others may be considered luxury items like expensive sound systems and dozens (even hundreds) of other things. There is no right or wrong answer on what one should buy. Everybody buys something for their own reason. But the rule of the thumb in personal financial planning is never to buy something you cannot afford.

Buying things using future money (that is what spending on credit means) is usually not a good idea. The credit card companies try to convince us that spending on credit is alright and that we should not delay our purchases until we can afford to buy them in cash. Spending on credit, and in the process racking up consumer debt is really not a sound idea. Usually, the correct and prudent way will be to delay the purchases until you can afford to buy them with the money you already have.

There will be, without question, exceptions to this rule of thumb on financial planning. However, the exceptions are not many. One reasonable exception is the use of credit to purchase a property for residence or for investment. Not a lot of people can afford to pay up a house purchase all at once. A guy may have to wait a whole life-time if he wants to wait until the day when he can fully pay for it in one lump-sum cash. Buying property for investment may be a brilliant idea if you know what you are doing. The main idea is that what you pay to the bank in bank loan and interests is more than offset by the returns on the property purchase. This is the concept of using “other people’s money” to make money for yourself. There are a lot more details to look at in this type of investment. So do be very careful when proceeding with such investments.

The role of financial planning is simply this - to enable you to follow your own personal financial plan based on your own financial and non-financial circumstances so that your financial objectives at various stages of your life can be achieved. It helps to minimise the unexpected, so that one would not meet with financial disasters like nightmares come true.

Ignore personal financial planning at your own peril - the price to pay could be your financial freedom!

About the Author:
Tushar maintains a Personal Finance blog called Everything Finance. The blog articles fall under these categories: Investing, saving money, shopping, blogging and making money online.
He also writes about Investing In India and Food & Travel

Here are some of his Popular Articles:

• How Come That Idiot’s Rich and I’m Not?
• Buying a New Construction Home: Do I need a realtor ?
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