Amit Wrote:
I bought June45 calls for Dell at $3 a couple of days before
the earning with the hope of higher price after the good earning
report. After the earning was out the stock has started moving south
and the June45 calls are currently at 3/8 or 1/2. Although I have
lost a lot, is there any strategy left which I can use to minimize my
losses. Any suggestion from Herm, Dave or any body else will be
highly appreciated.
iqc.com
Hi Amit,
Thanks for your question, Amit. Don't take my comments personally.
I want to answer your question so we all can learn something from
your situation. We've all made the same mistakes at some point in our
investment history.
I want you to look at the chart above of DELL. First, earnings release
dates are usually dangerous events that can trigger reactions. So, it
is wise to C.Y.A. as in make sure you Cover Your Assets! The slightest
shortfall in earnings and technology stocks are hammered downward.
A spread would have been better. You needed some PUTs.
Market expectations are built into the stock price as earnings
approaches. Hence, you paid too much for your long calls to begin
with. That is why we CCers on this forum love to sell them. The
majority of the call buyers never score and they expire worthless
and we get to keep the premiums. It sure makes us happy! :-)
From a technical TA standpoint, I would like to point out how
you could of avoided this excessive risk you are faced with if DELL
does not make more than $48.00 ($45 strike + $3.00=$48.00 CALL
B.E.) In looking at the DELL chart we see several peaks and tags of
the upper BB at the $45.00 level. For DELL to break upwards and
break that overhead resistance it would have taken a major news
event and/or blowout earnings report to get all those buyers out of
out of the way. Why? Sellers are just waiting to break even so they
dump DELL stock at the next opportunity.
The current up down zig zag is perfect for CCing and stripping
premies over and over again. Of course, you need to catch DELL as it
tags the lower BB with low RSI & crossover in the stocastics as the
WINs approach suggest.
The Stocastics has been clearly giving off up and down cycles while
the RSI, OBV, and volume has been flat for the most part. The
serious money is not expecting DELL to take off any time soon! DELL
has such a huge growth rate to live up to and the P/E is sky high.
That only means the I would have been more defensive in my entry
into DELL. Perhaps, buying the LEAPs first and selling a few rounds
of CCs while I wait it out!
NASDAQ: (DELL : $37 5/16) $103,878 million Market Cap at May
21, 1999 Ranks 174th in the Fortune 500 on Revenue & 156th on
Profit. Employs 10,350. Trades at a 66% Premium PE Multiple of 51.1
X, vs. the 30.9 X average multiple at which the Computers
SubIndustry is priced.
At this point, you are rolling the dice that DELL will reverse in time.
I see the lower BB starting to head downward forming a divergence
compared to the upper BB. What does that mean? TIMBER. I would
say there is more downside risk than upside potential for now. You
will most likely expire out of the money on the 45sJune.
In summary, all investors should have a game plan (what if's) if the
trade does not work out! Anything less than that is gambling and not
careful speculation or investing. It's a crap shoot. You need to stack
the card more in your favor next time! Check out our WINs
tutorial.http://webbindustries.com/coveredcalls/Wins1.ppt
Cut your loses as soon as you can and move on Amit. |
