TA, JDSU, QCOM, trendlines and channels - continued.
OK, let's get to my chart of JDSU.
white-crane.com
As you can see, JDSU is a strongly trending stock. Some stocks meander all over the place. But JDSU has been in a tight channel for an entire year, as it moved from $20 to $200. As you look at this chart, here are some things to ask yourself.
1. Can this last forever? Can JDSU continue up at a rate of 1000% per year for another year? If not, when should you get out?
2. Given that JDSU is as high as it has ever been above it's support line, should I buy, sell, or hold?
Please realize, here, that I am not talking about the future of the company, which is grand. I'm only talking about the stock price. JDSU is clearly over-valued at this price. I love this company. I want to own this stock for years. I just don't want to lose all the money I made last three weeks.
Three weeks ago, JDSU sold for $116 per share. Thursday it hit $204. That's a rise of 76% in three weeks! Yes, the news was great. Earnings, mergers, new coverage and upgrades, write-ups in IBD. I'm euphoric -- time to sell.
Except... well, two things. First, if I sell Uncle Sam and Georgia will take 34% of my profit, and I won't have that money to reinvest. Second, I want to own JDSU for the long term. What to do?
My answer is options. There are two strategies. The obvious one is to buy protective puts. Yes, the premiums are high. You could also pay for those puts by selling at-the-money covered calls. (Selling covered calls alone will not protect you all the way down to the 26-day MA).
Another strategy would be to sell deep in-the-money covered calls. For example, you could sell the Nov or Dec $150 call for about $50 per share. (Deep calls usually sell for near the difference between the stock price and the strike price.) Then you buy back the call before expiration. The idea here is that you are selling to top of the stock -- you are selling all the stock movement above the strike price. If the stock goes up or down you don't make or lose money.
Please don't take my advice on options without thinking it through yourself or getting professional advice. I am not a stock broker or financial advisor. I am an experienced investor, with only a little experience with options. I could very well be wrong.
I especially invite commentary on my strategy of selling deep covered calls and then buying them back when the danger is over. This is not a common options strategy according to the books I've read. Is there a hole in my idea?
Let's move on to QCOM on the next page. |
