Curb the High Cost of Child-Rearing with these Call Trades

by Jim Woods | April 20, 2012 7:15 am

Baby[1]Anybody who has ever been a parent knows that taking care of a new baby is more work than they ever could have imagined. It’s also more expensive than they would have ever thought. Now, I am not a new parent, but I do know two couples who recently brought their own bundles of joy into the world. When I asked each of them about the experience, both couples commented that the thing they noticed most is just how much money was involved in supplying baby with formula, diapers, and gear like cribs, onesies, toys, etc.

A recent article in the blog Money Under 30 took a shot at itemizing the cost of a baby[2] during the first 18 months. According to their calculations, baby gear like car seats, cribs, etc. can run up to $2000 for a well-equipped infant. Bottles, blankets, toys, etc, can cost about $200 per year or more. Diapers are roughly $50 a month according to the blog, but both of my new-parent friends think this number is way too low.

Baby clothes are costly too, and they can run about $200 a year according to Money Under 30, but here again my anecdotal sources think this is too low. Formula and food is another big expense, and that can run anywhere form $40-$80 per month. Then you also have other costs such as hospital and pre-natal expenses, childcare, college savings, and numerous miscellaneous expenses that can take a bite out of your wallet.

The bottom line here is that babies cost a lot, and though there may not be a replacement for the joy they bring, there are ways to invest that can help deflect the high cost of kids. Here are three baby-related options to help you actually sleep at night, even if baby won’t let you.

1) PG July 2012 67.50 call

Household name Procter & Gamble (NYSE:PG[3]) is perhaps a new parent’s best friend, because they make the top-selling brand of diapers, Pampers. The problem here is that the disposable diapers actually eat up a lot of disposable income too. Recouping those added expenditures might be done via the slightly out-of-the-money PG July 2012 67.50 call. If PG shares edge higher going into next quarter, this option could easily be in-the-money very soon.

2) MJN May 2012 85 call

Mead Johnson Nutrition Company (NYSE:MJN[4]) is the maker of the best-selling baby formula brands Enfamil and Enfalac. Parents who aren’t going the full breast-feeding route are no-doubt familiar with this brand, as it can be found in virtually any grocery store in America. A bullish bet on a potential spring baby boom this year is the MJN May 2012 85 call, which as of today’s writing was just slightly out-of-the-money.

3) TGT Jul 2012 60 call

When I asked my new-parent friends what their go-to store was for buying all things baby related, without hesitation both said Target (NYSE:TGT[5]). The store sells formula, diapers, clothes, toys, car seats, baby oil, baby wipes, in fact, just about anything you need for baby you can get at Target. Of course, you also buy your own household goods, as well as groceries, clothes, pet stuff, sporting goods, lawn and garden equipment, or just about anything a young family needs. If TGT shares grow along with baby, then the TGT Jul 2012 60 call could have you crying with joy all the way to the bank.

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

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  2. itemizing the cost of a baby:
  3. PG:
  4. MJN:
  5. TGT:

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