The third week of every month is a great time for options sellers. Every stock with options now has weekly options as they expire after the close on Friday.
The trade this week is immigration. The current debate on immigration reform is intensifying due to objections by the right wing of the Republican party. The American public differs and sees reform as an idea whose time as come. Should reform efforts fail this year, I still see a much greater willingness for illegal workers to come out of the shadows, greater willingness to hire them and a greater unwillingness to find them and deport them.
This should translate into more income headed to the shadow part of the economy. A lot of income is sent “back home”— and much of that will go through Western Union (NYSE:WU).
Back before the housing crash I began measuring real activity in the housing sector – traditional data was not telling the truth – by funds remitted to developing nations, data readily available from the companies doing so. These fund flows, much of them from immigrant construction workers, were shrinking for the first time in many years, proof the housing crash had started.
The reverse is happening – in part because the economy is improving, especially construction and restaurants, and more funds are flowing home and more to “back home.” Remittances to Latin America grew 2.9% last year, are expected to grow to 7.6% this year, part of overall remittance growth from 3.6% to 6.9% in 2013.
The play is Western Union. It is the premium and largest brand in this market with more than 500,000 agents here, including one in six in China with a premium product prized in a country where trust, pardon the pun, is at a premium. WU has higher margins than competitors such as Moneygram (NYSE:MGI) – more than 40% compared to less than 30% at MGI. Also at play is WU, since Q3 of last year, has given up a chunk of business due to anti-immigration efforts, disguised as anti-money laundering efforts by the Arizona Attorney General. These efforts should hit WU’s competitors this year.
The stock bounced off a bottom a few weeks back but still has a very long way to go with a forward P/E of less than 10. It is a great stock to own at $16; I see it good for $22. If you buy it and sell May calls, you will snare $0.15 or $15 per 100 shares. Do it twelve times a year and that is $1.80 return on a $16 stock – plus appreciation. Sell puts at $16 – you have to be willing to own at $16, and it could slide temporarily – but you snare $20 a contract in a week. Do it twelve times a year and you could get $2.40, or a return of 15%.
One last point – I desperately try to avoid intersecting investing opinion with politics. That being said I am proud to be the grand nephew of Annie Moore, the first person ever processed on Ellis Island and if you have sensed I have an opinion on the issue, that is why.
My Options Income Strategy Is So Effective, 93% of Investors Who Use It Make Money. This Special Video will teach you how to instantly add CASH to your account every week, every month and every quarter and NEVER put your portfolio at risk. Create Your Own “Extra Pay Day” Every Week.