Dykstra: Calling In Some AT&T Options

Last Friday, Microsoft(MSFT Quote) and General Electric(GE Quote) became the latest companies to land in the deep-in-the-money call portfolio's win column.

Microsoft jumped $1.02 to $30.12 Friday and was the top Dow performer after reporting strong sales of its new Windows Vista operating system and Office 2007 software suite Thursday. Meanwhile, General Electric rose $1 to $36.84 after a Citigroup analyst said the conglomerate could boost its shares by selling its entertainment, real estate and financial businesses.

Also last week, investors seem confused by the release of first-quarter economic data, which revealed slowing economic growth. The economy's growth was below economists' expectations and down sharply from 2.5% in the previous quarter, and the market faces a potentially difficult week ahead.

As always, it's important to seek out investments that perform best in present market conditions. It's not often that I buy deep-in-the-money (DITM) calls on a stock that is within a couple points of its 52-week high, but today I will, because AT&T(T Quote) is a firmly established company that boasts solid growth, and it offers investors the best of both worlds: rapid appreciation in a bullish market, stability in a shaky one.

In Cingular, AT&T owns the cellular telephone company with the most customers in the U.S. The wireless unit operates with a nearly 40% profit margin, and the company has an exclusive arrangement with Apple(AAPL Quote) for its iPhone. So when that gadget comes to market in June, it should provide a significant boost to the company's revenue. The exclusive arrangement with Apple gives AT&T a unique opportunity to draw users away from other service providers, such as competitor Verizon(VZ Quote).

On the whole, AT&T possesses a staggering $10.37 billion in free cash flow . With that kind of cash, the company can make the investments and acquisitions it needs to remain on the cutting edge. The acquisition of BellSouth is complete, and first-quarter revenue rose 84% over the year before. With the iPhone on its way and continued expansion in many areas of communications throughout the world, AT&T will continue to thrive.

After its close of $38.64 on Friday, now is the right time to buy DITM calls in AT&T. I will place a limit order to buy 10 of the October $32.50 (TJZ) calls for $6.90, or better, to control 1,000 shares, paying only 74 cents in premium.

Game of Life

On June 24, the inaugural season of the Israel Baseball League will commence, with six teams competing. Ordinarily, this relatively obscure factoid may receive little if any press. However, former Met Art Shamsky, manager of the Modi'in Miracle, ensured a mention for the new league by selecting former Dodger and Hall of Famer Sandy Koufax with the last pick in the draft, held to stock the teams with players.

< Previous

1 2

Next >