Hi Petrus,
We know what DELL did today as of this writing. It went down! Now, I
want to ask you some probing questions! That is how we all learn
before we lose out money.
1. What makes you think DELL will reach $130? Are you using
subjective reasoning like the flip of a coin?
2. If you are so sure (by the technical indicators you are using)DELL
is going to reach $130 why not just buy straight calls or stay where
you are?
Here is why I would be nervous if I had 1,000 shares of DELL with a
profit and just sitting around.
DELL P/E Overvalued
DELL will drop like a rock faster than it took to triple this year.
MMs and funds will exit by shorting the stock to lock in profits.
That is the law of the jungle! Keep watching DELL drop if this major
correction continues!
NASDAQ: (DELL : $125 1/16) $81,650 million Market Cap at August 27,
1998 Ranks 174th in the Fortune 500 on Revenue & 156th on Profit.
Employs 10,350. Trades at a Premium PE Multiple of 60.7 X, vs. the
26.0 X average multiple at which the Computers SubIndustry is priced.
Notice the chart below. Upper BB has been tagged and RSI is very
high. DELL is prime for a downward cycle!
bigcharts.com
Now, with that information in hand I would have jumped on CCs for
DELL 130 NOV. @ 14 1/4 x 10 = $14,250 in CC premies. Now, DELL closed
lower today and those 130 NOV. calls are worth 1 3/8s less as of the
close. You had a total of 14 1/4 points worth of downside protection
before it starts to tap your pocket.
Now, I now you will say, "but, what if, what if, what if DELL starts
moving up. I will lose the gain!" My friend, you have over $14,000
dollars in your account to buy LEAPs or CALLs to make even more
money! You are better off owning the LEAPs anyway! You can control
twice as much DELL stock and write twice as much CCs.
Take a look at the Nov. 14 call plotted on the chart with a Bollinger
Band. The odds are on your side that you would cover that CC at $6
when DELL bottoms at $90. I would venture to say DELL will drop below
$110 from here!
tscn.com
And think of the DELL 90 SEPT PUTs @ 1/2. You could buy 50 of those
sucker for some nice change as DELL drops. You might be able to cash
out at 2 1/2.
tscn.com
Please read a few post back for some trading CC rules to consider. |
