DELL/John – They are really not getting credit for their Solutions Group, which has improved margins greatly and essentially drives 80% of the revenues now but it's mixed in with hardware sales and people still think of them as a hardware company. Getting rid of VMWare in the fall really spooked investors and they are down about 20% but I agreed with DELL and think cloud has run it's growth course and I think they cashed out ($9.3Bn) on top there. They also went right back into cloud services with Apex – so I don't really see a negative getting out of VMW. They project good, solid growth in the Integrated Service Group and some short-term fast growth in Consolidated as well:
The bottom line is Dell projects $104.5Bn in revenues for 2023 (they are one of those companies that starts in Dec) with $5.2Bn in profits and that's very good for $37Bn at $49.50. Goldman just said this about them on Friday and sent the stock tumbling:
Dell Technologies (NYSE:DELL) shares fell slightly in premarket trading after Goldman Sachs downgraded the the IT company and removed it from its Conviction Buy List, citing outperformance and fundamental headwinds.
Analyst Rod Hall downgraded the stock to neutral from buy and lowered the price target to $61 from $68, noting that since Dell completely spun out VMware (VMW), the value has been unlocked.
"We continue to believe DELL remains inexpensive compared to its peers, but we see increasing fundamental headwinds hindering this value unlock," Hall wrote.
Lowering their target to $61 shouldn't stop us from buying them under $50, right? I wouldn't want to get too crazy but, in the LTP, we have no fear of owning 1,000 shares for $50 – so it's essentially free money to us to sell 10 of the 2024 $50 puts for $7.50. If they drop to $25 – we're happy to buy 1,000 or 2,000 more to lower the basis and sell more puts and calls, right? So $7,500 is free money and we take that and pick a sensible spread like:
- Sell 10 DELL 2024 $50 puts for $7.50 ($7,500)
- Buy 25 DELL 2024 $40 calls for $12.50 ($31,250)
- Sell 20 DELL 2024 $55 calls for $5.25 ($10,500)
That's net $13,250 on the $37,500 spread and I'll be very disappointed if all we do is make $24,250 (183%) at $55+ (10% higher than we are now) but what we have is a nice, uncovered gap where we can sell 5 or 10 short calls, like the June $52.50s, which are $1.55 so if we sold 10 for $1,550, we'd be using 74 (11.2%) of our 655 days to make 11.6% of our net entry back.
That seems worthwhile but we'll wait for it to get higher in the channel or, if it goes lower, we could sell 20 of the July $50 calls, which are now $3 ($6,000) and use that money to roll our 25 2024 $40 calls to the $30 calls, which are now $20 for hopefully $5 or less so $12,500 and then we'd buy 10 or 15 more for maybe $16 so let's say we bought 15 more for $24,000 and then we'd have
- 10 short 2024 $50 puts
- 40 long 2024 $30 calls
- 20 short 2024 $55 calls
- 20 short July $50 calls
And we would have spent $13,250 – $6,000 + $12,500 + $24,000 = $43,750 for the $100,000 spread so instead of looking to make $24,250 at $55, we're now looking to make $56,250 and, of course, we could still reduce that cost along the way with 18 more month to sell when the short Julys run out and, if they don't – we can easily roll them up at least $5 and our spread would be back on track so – on the whole, we'll basically be very disappointed if all goes "well" and we only make 183% on this one.
