DKS Options Present Opportunity

Dick’s Sporting Goods, Inc. [[DKS]] beat out the competition last year and many analysts expect the winning season to continue. The sporting goods retailer has certainly felt the pains of slower consumer spending, but quickly took action to scale back 2009 store opening plans and cut costs. As a result, Dick’s Sporting Goods remains one of the best positioned sporting goods retailers in the market.

Last quarter, Dick’s Sporting Goods reported Q3 results that were in-line with analyst estimates while the retailer remains adequately capitalized. Inventories came in at 4.4% less per square foot than in 2007, which is good news when sales are expected to slow. The company expects Q4 earnings of $0.47 to $0.54 with comparable sales stores expected to drop 10% to 6% for the quarter.

Investors looking to establish a position in Dick’s Sporting Goods for the long-term have a unique opportunity to offset any near-term losses. The $15 January 2009 call options on the stock are currently trading at $0.90 per contract. This means that investors can make $90 by writing calls for every 100 shares they own. Since shares are trading at around $15 now, this represents a 5.8% return.

This return can be further boosted by using long-term options called LEAPS as a substitute for common stock when writing the call options. Currently, the $10 January 2010 LEAPS calls are trading for just $7.30 per contract. This means that investors can purchase the rights to 100 shares for $730 and write a $90 shorter-term call option to realize a return of 12.3% in just ten days!

Of course, the risk with both of these strategies is that Dick’s Sporting Goods may announce some negative news that will send shares down. So, investors executing this strategy should be willing to hold the stock long-term if necessary. In the end, this is a quick way to make some money while getting involved with DKS stock at these cheap levels.

See “A Better Covered Call Alternative” for more information on this strategy or check out our Tools & Products for more ways to make money in today’s market.

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