I was talking to a friend Friday who's a pro. He walked me through the following trade that I'm pretty sure he put on last week.
Dell has about $4.40/share in cash with the stock trading at $8.50.
You could sell the January 2011 $10 put at the close Friday and take in $3.30 in premium.
If the stock goes up, you keep the $3.30.
If the stock goes below $7, you are effectively buying it at $6.70/share, or $2.30/share if you back out the cash. Even with business as bad as it is, Dell is expected to earn $1.34 this year. Who wouldn't want to buy Dell at less that 2x earnings?
I'm not saying you should do it but it's an interesting play.
Dell has about $4.40/share in cash with the stock trading at $8.50.
You could sell the January 2011 $10 put at the close Friday and take in $3.30 in premium.
If the stock goes up, you keep the $3.30.
If the stock goes below $7, you are effectively buying it at $6.70/share, or $2.30/share if you back out the cash. Even with business as bad as it is, Dell is expected to earn $1.34 this year. Who wouldn't want to buy Dell at less that 2x earnings?
I'm not saying you should do it but it's an interesting play.
1 comment:
I currently have about 12 cents to invest and this seems like a strong play.
Post a Comment