American Express (AXP, $25.58, up $1.23) is having a decent morning after reporting earnings that fell year over year but still beat Wall Street’s expectations. After the bell Monday, the company said profits came in at $815 million for the quarter, or $0.74 a share, versus $0.94 a year ago. Analysts had expected $0.59 a share.
Amex had warned back in July that it could see higher late payments and defaults on its credit cards due to rising unemployment and falling home prices. However, its return on equity came in at 28% which is remarkable given the current environment. The firm did warn of higher loan losses in the coming quarters but will try and offset some of that by cutting costs.
The 52-week low for American Express is $20.50 and by no means is the company out of the woods. I wouldn’t buy any call options just yet but if you bought 100 shares of the stock at current levels, you could sell the January 27.50 calls (AXPAS, $2.60, up $0.05) to reduce your cost to $23.00. If the stock gets “called” away from you in January at $27.50 your return would be 20%. If not, you could continue to sell out-of-the-money calls to reduce your cost while you wait for a rebound.
Rick Rouse
Rick@OptionsMentoring.com
