To: John Arnopp who wrote (1862 ) 10/22/1998 1:24:00 AM From: michael r potter Respond to
RE: CMPC. A good example of favorable reward/risk characteristics. Because it was priced so cheap last week, what did it do when those ghastly earnings numbers were released? It went from $2.50 last Thu. to $3.06 at the close today leaving an acceptable exit strategy despite bad news. Or,something interesting came up in looking at options [on this option]. A bunch of the March '99 $5 calls traded at $.75 today. This has possibilities! Lets say one bought last week at $2.50 or even right now at $3.00. By selling the March '99 $5 calls for $.75 one has a 20.8% rate of return unchanged to expiration or 50% annualized. If called in March, the rate of return goes to 91% or annualized at 218%. What is the downside? If buying at todays price and selling the call, the net purchase price is $3 minus the credit of $.75 or $2.25. What is the risk below $2.25? [less than the price of a mocha a Sbux for heavens sake!]. Is SFE going to sit back and let CMPC trade at half of book or less? IMO no way, they would force the issue. So what is the hangup? It is CMPC. Lets face it, this is not the kind of stock we bring home to mother. It's a problem child. So trust the parents [SFE] and don't tell anyone you bought it. Sorry, I know this post belongs over at CMPC, but no one's home and this information might stimulate thinking in regards to other $FE "orphan" stocks. Good trolling to you. Mike Re. SFE, the premium is perplexing but with recent news on the table, one is betting on market inefficiency that may not be there to close the gap. From the TLAB sale SFE has a fair amount of firepower to support prices when it wants to including its own. On a short term basis, the overall market seems overbought.
