Posted
Jan 10 2008, 10:26 AM
by
Dave Dispennette
Market Summary:
The market finished a back-and-forth session sharply higher today as investors sought bargains while also contending with concerns about the strength of the economy and upcoming corporate results. The Dow, which had been down nearly 90 points in the session, finished up 146.24, or 1.16 percent, to 12,735.31. The S&P 500 rose 18.94, or 1.36 percent, to 1,409.13, and the Nasdaq, which had been down more than 1 percent during the session, finished up 34.04, or 1.39 percent, at 2,474.55.
Fallen Stars:
MOT @ $14.79 (Motorola) manufactures wireless handsets, wireless infrastructure communication systems and analog and digital two-way radios. It is no secret that this company has done nothing but lose market share to Nokia since their last hit, the Razor. However, they do have a few exciting products that they unveiled at the Consumer Electronics Show this week. One of which was a hand held device that on top of being a phone, MP3 player, GPS and all the other exciting features that are now standard on all high end devices, it also receives live TV signals. I haven't seen it yet, but it could be the next big thing for Motorola. If we're wrong, we'll end up owning a stock that everyone already hates and probably doesn't have much more downside risk. However, if we're half right and this company regains some of the buzz from the good old days, we have ourselves a stock with the potential to double. This stock is going into The Playbook 100. We will establish half a position here and add remaining half on any weakness that brings the stock toward the $12 level. We also have an attractive long term option (LEAP) listed below as another opportunity.
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Options:
WMA AB @ $6.05 (Motorola 2010 $10 Call) is our LEAP of choice for Motorola listed above. We are paying $1.25 for two years of time on this contract. We would establish half a position here and if we get the pull back mentioned above to $12, we should be able to add remaining half around $3, giving us a cost average of $4.50. If the stock goes to $20 anytime during the next year, we make over 100% return. A move back to $26, the recent high set back in 2006 and we gain almost 300%. This is the type of risk to reward that we like to get involved with. Rather than investing almost $15,000 to own a 1,000 shares, we can control the same amount of stock for $4,500 in this LEAP and make the same amount of money on the upside.
We don't want to get too fancy here, but for those of you that write options, you can wipe out the entire time value by writing (or selling) the WMA AD at $1.25 (Motorola 2010 $10 Call) and collect that premium. This spread will yield you a 200% return with a move to $20, assuming we get second half of option on pull back to $12, otherwise, we'll only make 100%. AS always, call me if you need help with this play.
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