Last week, we followed two successful trades (TGT and GME) based on Jason’s Channel Checking information and Phil’s option-strategy design expertise. This week, we have two more option trade recommendations – a bullish trade on DELL, and a flat-lining bet on PALM. – Ilene
Positive – DELL
- 73% of respondents stated that Dell computers were selling better than other brands sold at their store location.
- 60% said that Dell was the top brand right now, 27% said that HP was the top brand and 13% said that Sony was the top selling brand.
- The Dell Inspiron was the top model according to 40% of respondents the HP Pavillion was tops according to 20%, while the Dell XPS and Sony VAIO were tops according to 10% each.
How would Phil play it?
DELL – This is a tough one as selling computers does not always equate to making money on computers but let’s assume Dell is big enough to have put a big squeeze on their suppliers and shipping costs, which will have played in their favor as well. My favorite play on Dell would be the simple July $10 calls for $1.55, which have just a .41-cent premium, fairly low if Dell does indeed take off. A more conservative approach would be to buy Nov $11 calls for $1.60 and sell the Nov $12 calls for $1.15, which is a net of .45 and will make .55 (122%) if Dell is good enough to finish at $12 in November. The nice thing about this trade is that the expected loss is limited if it goes the wrong way as the spread between the Nov $13 and $14 calls is still .25 so a 20% drop in Dell could, theoretically, still leave us with more than half of our investment. In theory, we are risking .25 to make .55 – a good risk/reward proposition.
Negative – PALM
Sprint Reps Recommend Samsung Devices over Palm in the face of “Pre” launch..
Ticker: PALM
- 60% of respondents at Sprint stores said that it was possible to come down and place a pre-order for the Palm Pre. 40% said you could not.
- 100% of respondents said they were not “sold out” of the Palm Pre. We asked this question to get an early lead on sell-outs, delays or difficulty in getting units based on demand.
- 27% of respondents stated that the Samsung Instinct was the top selling device.
- 23% said it was the Blackberry Curve. 10% said the LG Rumour was the top seller and 75 said the LG Lotus.
- 60% of respondents cited some Blackberry model as the best device for e-mail. The Samsung Instinct was identified as the top e-mail device by 10%.
- 28% cited the Samsung Instinct at the top device to get for music as the primary application. The Samsung Highnote was seen as the top device for music by 20% of respondents.
- 73% of respondents said they are seeing increases in upgraded phones or new account openings in the past month compared to the previous month.
Phil’s recommendation:
PALM – As this is not earnings related we are really playing for a non-event on the Pre. My concern is that the actual roll-out is still 2 weeks away and we can’t rule out the possibility that Sprint will conduct a well-coordinated marketing effort between now and then. PALM gained 10% today and was 10% higher than this last Tuesday. With good support at $10 we can take advantage of PALM’s huge premiums to SELL the $11 calls at $1.05 and the $12 puts at $1.50. We are collecting $2.55 and our window of profit is anything under $13.55 on June 19th as long as it’s not lower than $9.45. Max profit on this trade would come at anywhere between $11 and $12 where we would owe a total of $1 back to the caller and putter so we root for a flatline.