This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

3 Auto Stocks to Buy Instead of Ford, GM

Despite the economic turmoil in Europe, Avis continues to successfully expand its presence there, relying on and seeking out new partnerships. But it hardly relies on Europe for a significant portion of its business. According to the company's most recent quarterly report (via the SEC Website), approximately two-thirds of its business happens domestically. And not all of its international business comes from Europe.

I like CAR as a long-term play despite recent volatility. In these types of situations, I often write covered calls as I buy the stock. This provides income, which doubles as downside protection. You must be bullish long-term to employ this strategy. If the stock drops considerably you could be stuck with a losing trade.

Consider the following example to how covered call income offsets a decrease in the value of the stock leg of the trade.

If you purchased 100 shares of CAR at this past Friday's closing price of $15.92 per share, you're in for $1,592. You proceed with a normal, un-hedged stock trade.

If, however, you sell the CAR Nov 2012 $18 call and collect 90 cents (though I might hold out for 95 cents or $1.00 using a limit order), you lower your effective purchase price of the stock. It comes down to $15.02 because the 90 cents worth of income comes into your account as a credit. You spend $1,592 on the stock and receive $90 (options use a multiplier of 100) to sell (or write) the call. That means you're on the hook for $1,502.

You do not start to lose money on this trade until CAR breaches $15.02. That gives you some breathing room.

On the flip side, you supercharge your potential gains.

Consider a scenario where your shares get called away at $18. If you sold 100 shares of CAR, purchased for $15.92 each, at $18, you realize a 13.1% profit. Factor in the covered call income you received and that gain kicks up to approximately 19%.

While some investors consider options inherently risky, many strategies, particularly ones such as covered calls that provide a built-in hedge, actually mitigate at least some risk.

To that end, while I would buy TSLA, ZIP and CAR over F and GM in the near-term. If I had to touch F and GM I would not do it without the support of covered calls.

>Contact by Email.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author held no positions in any of the stocks mentioned in this article.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
CAR $54.27 0.00%
F $15.27 0.00%
GM $35.70 0.00%
TSLA $247.73 0.00%
AAPL $132.54 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs