Don't know if this was posted.
Sell SanDisk Call Options on Slowing Chip Demand, JPMorgan Says
July 20, 2010, 9:53 AM EDT
More From Businessweek
July 20 (Bloomberg) -- Investors should sell bullish SanDisk Corp. options because slowing demand signals that the biggest maker of flash-memory cards won’t extend gains after more than doubling in a year, JPMorgan Chase & Co. said.
Equity derivatives strategists Amyn Bharwani and Marko Kolanovic recommended selling October $48 calls on the chipmaker, which has surged 124 percent from a year ago to $41.79 as of yesterday. That’s the biggest gain among 76 technology companies in the Standard & Poor’s 500 Index.
The strategists cited JPMorgan semiconductor analyst Christopher Danely, who said last week that chipmaker stocks may retreat because inventory is increasing as demand slows, and Harlan Sur, who assumed coverage of SanDisk July 15 with a “neutral” rating and $50 year-end share-price forecast. That’s $1 below JPMorgan’s prior estimate.
“We are seeing multiple indications of a downturn,” San Francisco-based Danely wrote July 12. “We do not believe the downside is priced into the stocks and expect semis to continue to trade off over the coming months.”
The New York-based derivatives strategists also said call selling is “attractive” because implied volatility, the key gauge of option prices, for three-month SanDisk contracts is higher than the stock’s historic volatility over the past month.
Selling a call option, which gives the right to buy a stock at a set price and date, is a bet that the shares won’t exceed the strike price before the contract’s expiration date, allowing the seller to keep what the buyer paid. Milpitas, California- based SanDisk closed at a 32-month high of $49.70 on June 17 and isn’t likely to exceed that level before October, the strategists wrote. |
