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Technology Stocks : Compaq
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To: Night Writer who wrote (31422)8/21/1998 10:28:00 PM
From: FR1  Read Replies (1) of 97611
 
I don't know for sure. A few things are obvious:

1) CPQ, although ready to move, has spent 6 months digesting DEC and consequently the stock has not moved. Everyone was waiting to see how long and even if CPQ can digest DEC. That story is pretty much over now. The numbers look good - check any broker - check Zack or someone to see a summary of brokers - all agree CPQ is out of the woods.

2) Being a blue chip stock with a low price, a lot of shares were bought over the last 6 months by MMs and people.

3) So we have a lot of people with a lot of stock and the stock is not moving very fast. This means the option premiums have to be low because the delta is low and this means that if you want to get money out of the stock you hold (and as a MM you gotta get money out of the stock), you have to sell covered calls very close to the current price. Consequently we have a lot of option shares selling at only one strike point out. So as the stock starts to move (like it is starting to do), you get situations like this week. It is a good sign to see them get burned (notice how it even made it to 37+ this week?) because that means we are getting ready to move.

Once we get up into the 50's or so it will be another story - better deltas, better premiums, etc.
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