Try This Healthy Tobacco Trade

Sometimes bad habits can be profitable. Take, for example, a producer of tobacco products. It generally is regarded that smoking tobacco products is not beneficial for your health, and in fact can be dangerous. But still, people continue to smoke. Trading also can be considered dangerous to your health — depending on how a trader handles the stress and anxiety that trading is sometimes known to cause.

Here is a trade idea that benefits from a bad habit and may just provide some stress relief from another. The theory on this covered call trade example is this: Altria Group (NYSE:MO) primarily produces tobacco products. Marlboro and Parliament are a couple of their more famous brands. The company just reported solid earnings last week, including a 9%-plus increase of adjusted earnings per share.

What really was astounding was that MO was able to increase revenues despite a declining cigarette volume. Analysts have forecast that the company’s EPS will grow about 6% a year for the next five years. Technically, a trader could almost not ask for a better six-month chart for a covered call.

The stock has been slowly rising with a few minor pullbacks for better than six months. The stock never has been higher before, so there is no overhead resistance that might stall it from continuing to climb. Is it too good to be true? We’ll have to wait and see.