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Trade of the Day: HCA Corp. (HCA)

For now, the bull train's on cruise control but be on the watch for anything that can derail it


If we can get a little help from foreign stock markets to support the move from U.S. markets, it won’t surprise me if the S&P tries to cap the high end of its range by Jan. 4, which would put the stock market’s benchmark index at 1,850. The last week of the year can be choppy, but with new money coming in as of Jan. 2, barring any negative outlier that catches us all by surprise, there is little to keep the S&P from attaining this target.

So, for the immediate near term, it’s all about as good as one could ask for in terms of the trading landscape. It’s “breakout central” for the indices, and the bull train is on cruise control. I see one blue-chip chart after another showing upward momentum continuing for the next few days ahead.

However, the stock market’s trajectory beyond Jan. 4 requires a palm reader as the debt ceiling war will be next for the market to contend with, but the political landscape doesn’t have that perilous feel this time around. First-quarter earnings should reflect the upbeat economic data that have been pouring in these past few weeks. A good dose of those expectations have been priced into stocks as of this writing, ultimately setting up for a substantial “selling on the news” setting.

That’s why the idea is to never be too complacent, always prepared to rein in stock market exposure when necessary. For this reason, I love the measured protection that covered calls offer. I’ve written about the opportunities in HCA Corp. (HCA) before. As one of the largest hospital holding companies, a covered call in HCA is a safe way to benefit from the Affordable Healthcare Act boom while insulating your downside risk.

There’s a great basic primer on covered calls that you can find here, but essentially a covered call means holding a stock, and then selling (or writing) a call option against that long position to collect the options income and goose your overall return in the stock. I actually recommended buying HCA stock at the end of October, and since then I’ve written two calls against that position.

At November options expiration, we kept 100% of the 50-cent premium we collected in the HCA Nov. $49 calls, and at December options expiration, we kept 100% of the 30-cent premium we collected in the HCA Dec. $49 calls. We’re looking for a three-peat with January calls, and there’s plenty of time for you to get in on the action, too. What’s more, covered calls are easy enough that they can be done in nearly any individual retirement account.

For every 100 shares of HCA that you own or purchase, sell to open one HCA Jan. $49 call at $0.30 or more per contract. You can place a good til canceled order to accomplish this.

If HCA shares are trading on the stock market above the $49 strike price at expiration on Jan. 18, your shares will be called away for a quick 5.5% gain. If HCA shares are trading below the $49 strike price, that’s great, too: the call option will expire worthless as intended so that you keep 100% of the premium you collect, and you keep possession of the shares to write another call against them.


Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income,which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.

Now is the perfect time to join Bryan Perry’s breakthrough income investing service, Cash Machine Trader, and discover how selling covered-call options can help you manufacture ‘top-up dividends’ of up to 30% per year.


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