In implementing covered calls, an investor or trader may do so with the belief the price of stock will remain flat or decline in value before a stock option’s expiration date. Combining this principle with markets that are predicted to not outperform as a result of high gasoline prices may yield suitable covered call selections within those industries.
Choosing industries that rely heavily on gasoline is an obvious possibility for covered calls because this increases operation costs. Moreover, if those increased operation costs cannot easily be passed onto the consumer for stable or higher revenue growth, a considerable outcome could be lower profit margins, which can influence share prices.
Three industries that do make heavy use of gasoline in their daily services are 1) Land based logistics companies, 2) air based logistics and transportation companies and 3) Gas powered tanker businesses. Secondly, industries that’s products or services require consumers to use large amounts of gasoline with those products may also be affected by high gasoline prices. Two such industries are 1) automotive manufacturers and 2) non-essential gasoline powered equipment suppliers.
• Expeditors International of Washington Inc. (EXPD): EXPD makes heavy use of logistics services. These services include both ocean and air transportation and consequently require large amounts of gasoline.
• JB Hunt transport services, Inc. (JBHT) JBHT exists within a competitive trucking industry making large price increases commensurable only insofar as the market and competition allows.
• Knight Transportation Ltd. (KNX) KNX is another US based over land transportation company. This business is also in competition with other refrigerated logistics providers.
• United Parcel Service, Inc (UPS) UPS is a well known freight and package delivery company that’s fleet is one of the largest in the World.
• Southwest Airlines Co. (LUV): Despite fuel hedging and low operating costs, LUV is potentially vulnerable to high gasoline prices because unlike some premium airlines, its costs have already been reduced to a large extent allowing the rising cost of fuel to have a potentially more direct impact on revenue.
• Deere Co (DE): DE, also known as John Deere manufactures and sells large equipment to a number of industries including agriculture, commercial, construction and the leisure based service providers such as golf courses. The high cost of gasoline may cause some buyers of such equipment to repair existing equipment, and hold off purchasing new equipment.
• General Motors Corporation (GM): In addition to high competition from foreign automotive companies, GM faces a domestic market facing a large increase in private transportation costs. The combined affect of foreign competition and high gas costs may flatten or lower GM’s share prices.
While no covered call is a sure bet, and gasoline prices may have already been priced into stock prices, demand for gasoline and supply of gasoline are not generally predicted to change for the better in the near future. Such being the case, the above companies and one’s similar to it may follow a flat share price trend in the near future.