Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: FR1 who wrote (6238)	12/29/1997 11:15:00 AM
From: Herm	Read Replies (1) \| Respond to of 14162

Hi Franz, How do I like Compaq? I just had some private email yesterday on that question. So, the information is fresh in my mind. The P/E is about an 8% premium right now. On the one hand, the CPQ 2-1 stock split just before the earnings release in mid January is a very bullish sign! Afterall, a smart company like CPQ WOULD NEVER ANNOUNCE a 2-1 split if the earnings picture was not BRIGHT! And we know, their sales have been #1 in the computer industry this past year. CNBC had some very positive comments today. It seems CPQ has been voted the number one computer company for 1997. On the other hand, CPQ insider trading activities recently show massive liquidation of shares. Hence, that is one reason for the large recent drop in stock price. I would be interested in seeing if the short interest is also increasing. Furthermore, the current float turnover (TRO) of shares pegs CPQ at around 75 days. That is a moderate rate of turnover. The upcoming 2-1 stock split will further dilute and increase that outstanding float. Thus, it will cause the stock price increases to perhaps slow down a bit. It would take some fairly large earning increases to put the P/E back in line with the growth rate. The last CPQ (July 29, 1997) stock split was for 5-2. That is more like it! Indeed, another 2-1 split on top of that 5-1 split so soon would make CPQ very sluggish and may not meet street expectations. Kinda price rich don't you think? "NYSE: (CPQ : $54 3/8) $37,714 million Market Cap at December 29, 1997 Ranks 55th in the Fortune 500 on Revenue & 59th on Profit. Employs 18,865. Trades at a 8% Premium PE Multiple of 20.4 X, vs. the 18.8 X average multiple at which the Computers SubIndustry is priced." -------------------------------------------------------------------- >Please let me know what is wrong with the following strategy: >1) I am a little wary of going for little known businesses like VVUS >because I watched it drop from $40 to $12 in no time. It would take >a lot of CCs to make up for that drop if VVUS does not recover. Humm? Well Franz! You have a valid concern about VVUS. Although, I would have to disagree with the risk factors. The VVUS profit potential is much greater not less. The current price of the stock is so beaten down that anybody can make 25% to 75% in four months buying the stock and writing CCs at this point forward because of the whipsaws in price movements. But, the VVUS stock for those investors with the risk/reward profile that can handle it! VVUS will come back! >2) I somehow feel I will be better off buying solid names like >Compaq, building up my shares, and just sit around doing a monthly >CC on the stock. Humm? There is risk in just about any stock. But, if you know the computer industry and apply the trading option CC tools you can make money even when the stock goes down. >3) If I ever get called out, I add to my shares of INTC, RXSD, etc. >and continue. Hummm? Cash is good at times on the sidelines. I would add to RXSD on the dips and turnaround and CC. >4) In other words, why not focus all your firepower on getting a lot >of shares of a few good businesses, ignore the daily price of the >stock, and just sit around writing CCs once a month forever? I can't find anything wrong with your statement! That is, what I basically have been doing for three years. It is one investment style that makes money and requires perhaps less time than daytrading. Of course, the rate of returns is different. It is not the only way to pull out a profit from the stock market! I'm glad you jumped on RXSD. The stock has been basically rock solid over the past month even with all that rock n roll price swings in the markets.