Bank of America advises covered call options on Penn National Stock

Posted on: July 18, 2021, 1:00 a.m.

Last updated on: July 17, 2021, 10:21 a.m.

Penn National Gaming’s (NASDAQ: PENN) free-fall stock is among the 10 names Bank of America recommends as the best short-term covered buying ideas.

National Penn Stock
Hollywood Casino by Penn National Gaming in Pennsylvania. Bank of America recommends selling calls on the stock. (Picture: Baltimore Sun)

Covered calls are an options strategy also known as write calls or put calls in which an investor writes call options on a stock they own. Typically, covered calls are used to generate income on stocks that equity market participants believe are trading sideways, lower, or slightly higher until the expiration date.

While hedged buy strategies will underperform stocks in rapid bull markets, they will still make significant profits, ”wrote a team of Bank of America analysts led by Gonzalo Asis. “Covered buying strategies tend to outperform outright shareholding in stable, falling and rising markets. “

The bank has reviewed 5,000 potential covered buy ideas on members of the widely followed Russell 1000 Index regarding the upcoming August 20 expiration. Writing calls on Penn National shares during the $ 70 strike was one of the top 10 ideas generated by the bank and the only one involving casino capital.

Good idea for a short term rise with Penn National Stock

While the largest regional casino operator still has fans on Wall Street, stocks are stuck in a now prolonged slump.

Penn National slipped 9.7% last week as reopening coins, including gaming stocks, were sold amid concerns over the delta variant of the coronavirus, potentially undermining demand. With the drop, the once-popular regional casino operator has been more than halved from its 52-week high of $ 142 set in March and is down 23.34% year-to-date. – good for one of the worst performing casino stocks.

Still, Penn has its backers with Goldman Sachs recently placing the name, with Las Vegas Sands (NYSE: LVS) on a list of 10 stocks with the highest upside potential over their 12-month price targets.

Last Friday, Penn National closed just over $ 66, a level the stock had not seen since last December, and it hasn’t broken its 200-day moving average for more than two months. The name’s recent downtrend could be ripe for call writing as it limits the risk that investors will see their stocks recalled while still being able to generate some upside from a stock that has offered little. lately.

Bank of America Strategy for Penn

Bank of America recommends selling the $ 70 Penn calls expiring Aug. 20, which traded around $ 4.05 per contract last week. The bank says that at this price, investors would earn a 5.9% buy and dividend premium and 8.5% call return if Penn stock closed above $ 70 on the 20th. August. Only four of the other names on the bank’s list are expected to offer higher call and dividend premiums.

Investors considering Bank of America’s idea should keep in mind that Penn National is releasing its second quarter results before US markets open on August 5. If the company surprises on the upside and offers a bullish outlook, the stock could potentially rebound. .

Last month, Penn increased second-quarter earnings and adjusted earnings before interest, taxes, depreciation, amortization and restructuring or rent costs (EBITDAR) forecasts.

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