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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Kmartin who wrote (9536)	1/29/1999 8:32:00 PM
From: Herm	Read Replies (1) of 14162

SDTI - DAMAGE CONTROL - GET DEFENSIVE! "Enterprise network and data security software company Security Dynamics Technologies (Nasdaq:SDTI - news) dropped $4 1/16 to $20 7/8 after saying higher sales commission expenses from a higher-than- expected sales mix resulted in Q4 EPS of $0.08 (excluding charges), missing the Zacks mean estimate of $0.12..." Looks like a free fall until $13.00 - $14.00 with a possible dead cat bounce at $17 before the plung. The RSI is only now starting to cross below 50. NASDAQ: (SDTI : $20 7/8) $730 million Market Cap at January 29, 1999 Trades at a 18% Discount PE Multiple of 40.9 X, vs. the 49.8 X average multiple at which the Software & Services SubIndustry is priced. Software & Services SubIndustry up .56% / Technology Industry up 1.56% Today. POSSIBLE ACTIONS: 1. Short against the box to freeze any further "give backs" and losses. Short an equal amount of SDTI if you have the funds. 2. Write CCs DEEP in the money a few months out! Grab as much premies as possible to cushion your stock. Example, 15 APR @ 7 1/2s or the 15 JUL @ 8 1/2s. You are looking to eventually cover at a major discount to you! In the meantime, you have at least a 7 1/2 price hedge at no cost to you! 3. After you do step #2 you load up on more SDTI PUTs 15 APR @ 1 1/4 to enhance your return even more! Again, the easy way to do this is short against the box!

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