Allstate Corp: ALL Options can Fetch Premium Profits

It is another beautiful Monday morning, and as usual, I am excited about the possibilities that this week hold. We start our options trading activities this week with an exploration of the options of Allstate Corp (NYSE:ALL). Allstate Corp with its market capitalization of $27.99B is a holding company for Allstate Insurance Company and it is the largest publicly traded home and auto insurer in the United States.

The Company’s business is conducted principally through Allstate Insurance Company, Allstate Life Insurance Company and their affiliates. It is engaged, principally in the United States, in the property-liability insurance, life insurance, retirement and investment product business.

Why I am Excited About Allstate Today

Allstate caught my attention today after the stock soared to make a new intraday and 52-week high of $66.87 per share. Shares of Allstate have been soaring powerfully as the stock recorded 18 new highs within the last one month. The stock is already up 23.26% in the last one year, 22.31% in the year-to-date, and 9.38% in the last one month.

Interestingly, the stock is trading above its 50 and 200-day moving averages as it continues to soar to new highs. I am excited about possibilities inherent on the bullish side of ALL options and I am planning to buy ALL call options

Why Shares of Allstate Are Soaring

Allstate is the insurance company that can’t seem to wrong in the last one year as the company’s recent impressive third quarter (Q3 2014) (Opens PDF) earnings shows. Highlights of the third quarter earnings are presented below

Written premiums for the trailing twelve months ended September 30, 2014 increased by $1.4 billion to $29.3 billion, or 5.1%, over the trailing twelve months ended September 30, 2013 of $27.9 billion.

Allstate brand written premiums increased $303 million, or 4.5%, Esurance premiums rose $50 million, or 14.0%, and Encompass premiums increased $14 million, or 4.3%, compared to third quarter 2013.

Third quarter 2014 net income available to common shareholders was $750 million, or $1.74 per diluted common share, compared to $310 million, or $0.66 per diluted common share, in the third quarter of 2013

Third quarter 2014 net income available to common shareholders was $750 million, or $1.74 per diluted common share, compared to $310 million, or $0.66 per diluted common share, in the third quarter of 2013

Fundamental Reasons to be Bullish on ALL

The first reason to be bullish about the possibilities in ALL options is the stock’s undervaluation as evident in its Price to Earnings ratio. Allstate has a P/E ratio of 12.17, which is pretty low for an insurance company when the industry average is a little over 15.

Interestingly, Allstate remains profitable as its sports a dividend yield of 1.70% and revenue is expected to grow by 5% this year and by another 5.70% next year. The earnings front is a little tricky as the Allstate’s earnings is expected to drop by 7.70% this before it would increase by 10.30% next year and then by a compound 6.38% annually in the next 5 years.

How to Trade ALL Options

ALL Chart

The chart above shows how the shares of Allstate Corp have traded in the last one year. You will observe that the stock has been trading northbound since February after experiencing a drop in line with the general market in January. The trendline support shows the stock holding at $56, $60 and at the current $66 share price.

The RSI Index stands at 78.62 and it suggests that the current rallying might be reaching a peak. However, the strong fundamentals and encouraging outlook suggests that the stock has more room to soar. I recommend buying the ALL Jan 2015 65.000 call (ALL150117C00065000) at an asking price of $2.52.

 

— Daily Option Alerts

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