Barron's latest issue mentions Vitesse semiconductor as being
one of the companies with excessive valuations. What this means
is that if something goes wrong, the stock could go way down.
On the other hand, if business holds up, there is a lot of
room upside (e.g. Oracle, last year, made the Barron's list and
it is now higher than what it was last year).
Robert, yes, if you believe VTSS will go down, you should be selling
calls. The approach does NOT give upside potential -- infact, it
LIMITS your upside potential to the premium you receive. Your
downside potential is as if you were long on the stock. This is
a good strategy if the stock will go nowhere in the next month.
If you think the stock will really go way down, sell a call
with a strike around 30 (if those options are really being traded).
That way, you get downside protection to 30.
I'm still long on the stock. Insider selling doesn't tell you much,
least of all that the insider doubts the company's prospects (she
could just want to pay her mortage :) )
lakshman |
