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Technology Stocks : WDC/Sandisk Corporation
WDC 181.08+3.5%Dec 19 9:30 AM EST
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To: Steve 667 who wrote (26294)7/3/2004 10:28:57 AM
From: Art Bechhoefer  Read Replies (1) of 60323
 
Black-Schole is a method of valuing options, based on the volatility of the underlying shares and the extent to which the option has intrinsic value or is priced at a premium. It doesn't help when pricing reflects the underlying business of the company and its balance sheet.

As you have suggested, the price of SanDisk often does not go up following even a strong earnings statement. What makes it go up or go down is what major institutional investors think about the stock. Right now, there is a lack of enthusiasm over semiconductor stocks in general. They were the group that took the biggest dip in trading during the past week, and SanDisk was among the losers, along with Intel and even QUALCOMM.

It is entirely unpredictable when a stock that is basically a strong earnings performer will react to a favorable earnings statement. Even though a basically strong stock can go down without any underlying change in its favorable fundamentals, buying puts can be an expensive form of insurance. I've looked at July puts and calls with an exercise price of 20, for example, and find that the excessive premium, with less than two weeks before expiration, is simply too great a risk. I'd rather hold the shares and have done with it.

Art
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