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Subscribe to the StockLab.com mailing list! Click Here to see the benefits for members. (If you don't know how to use stock options, Click Here) SL Insider FREE Call Option 10/30/02: MBNA (KRB, Current Price @ 10:15am ET: $19.72) November 20 call for $.80. Although KRB shares are down around 20% so far in 2002, we actually think now could be a good time to get in to calls on one of the premier credit card names in the U.S. and the world, especially given its seemingly reasonable PE ratio of under 15, for a company whose revenues are growing 15-20% annually even in this economy. Plus, we expect that the economic data to be released in the coming days will raise the likelihood of further interest rate cuts from the Fed, and lower rates should theoretically increase business at all of the credit card firms, particularly the leading ones such as KRB. And the call options are really cheap as well, which of course is always our favorite characteristic of all. SL Insider FREE Put Option 10/30/02: Human Genome (HGSI, Current Price @ 10:15am ET: $10.30) November 10 put for $.90. Human Genome Sciences (HGSI), one of the "leading" researchers into the human genome and potential drugs to be made from that research, used to be a real hot stock for bubble investors to partake in. However, in reality HGSI continues to be one of the priciest stocks in the market even at this price, and with HGSI shares continuing to make new lows heading into November, we think a further drop is possible if not somewhat likely. If you want to receive two totally FREE stock option profiles like this every two weeks via e-mail from us, immediately when we come out with them, Join STOCKLAB.COM INSIDER today!
On November 1, just two days after our two profiles above, the KRB November 20 call traded as high as $1.35 for a 69% profit, while the HGSI November 10 put soared to $1.50, marking a 67% profit in less than a week on Wall Street!
SL Insider FREE Call Option 9/24/02: Philip Morris (MO, Current Price $43.15) October 45 call for $1.10. Although it does feel a bit crazy to even be looking at any call options with the markets the way they are right now, if you are of the mind that stocks are likely to rebound from their current oversold condition, then the tobacco sector, and leader Philip Morris (MO), is one area where we definitely expect to see growth regardless of the nation's economic woes. And the best part is, thanks to a bit of a selloff this summer related to certain legal judgments levied against the company, the valuation at this time actually seems to support a rally from here -- a price to revenues ratio of less than 1, and a PE of under 10, all for a company growing its earnings by over 20% year over year. How many companies can make that claim in the current environment?
SL Insider FREE Put Option 9/24/02: Limited Brands (LTD, Current Price $15.41) October 15 put for $.75. We believe retail will probably prove to be the latest sector which will feel the sting of this latest leg lower in the markets, with Monday 9/23's announcement of slowness in September out of sector giant Wal-Mart (WMT) serving in our minds as the last call for the group in the near-term. After searching through all the retail stocks, LTD proved to be the best combination of good put option prices, an attackable valuation at nearly twice the multiple to revenues as most of its competitors, and a chart which looks like we are less than a dollar away from a likely technical retest of the $10 level.
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On September 30, the LTD October 15 put traded as high as $1.35 apiece, representing a significant 80% gain in under one week on Wall Street!
SL Insider FREE Put Option I 9/3/02: Hewlett-Packard (HPQ, Current Price $13.43) October 12.5 put for $.70. We've had our eyes on HPQ puts for some time, profiling them twice during 2001 and profiting from that move on both occasions. We never really liked HWP stock, and we never liked Compaq stock either, so the merger of the two companies doesn't please as much, and in fact we believe the hype that the move has led to even further depressed saled due to customer confusion and unhappiness. Plus, heading into Earnings Warning season here in September, and following recent news of Q3 softness from Intel (INTC), Novellus (NVLS) and Sun Microsystems (SUNW), we really think broad technology is probably the sector to put right now.
SL Insider FREE Put Option II 9/3/02: JPMorgan Chase (JPM, Current Price $26.40) October 25 put for $1.55. Although this option is on the expensive side for what we usually like to look at, we think the current bout of weakness on Wall Street is likely to result in some softness across the major moneycenter banks like Citigroup (C) and especially JPMorgan Chase (JPM). Especially given the Japanese Nikkei average's fresh 18-year low to begin the month of September, JPMC is one of the most heavily-exposed in that region and this ought to give the stock some extra weight heading into September, traditionally a very tough month for the U.S. stock market and for the financial sector in general.
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On September 3, the same day as our profile, the HPQ October 12.5 put traded as high as a dollar, a stunning 43% gain in just HOURS! Meanwhile, on September 5, just two days after our JPM profile, the JPM October 25 put traded way up at $2.75, a 77% surge in just two days on Wall Street!
SL Insider FREE Call Option 8/19/02: General Motors (GM, Current Price $45.50) September 47.5 call for $1.50. As the U.S. stock market continues to rebound here in August, one of the few areas of the American economy which appears to be continuing strong is the auto sector, and leader GM (GM) in particular, where 0% financing is back in force. The last time a wave of no-interest financing hit the industry was the end of last year, and the result was surging auto sales despite a flagging economy at large. With shares of GM down more than 34% since early May and growth likely coming this summer, the calls are looking good to us.
SL Insider FREE Put Option 8/19/02: Yahoo! (YHOO, Current Price $12.10) September 12.5 put for $1.25. We love Yahoo! (YHOO)'s Internet properties as well as anyone's on the Web, but as far as the stock goes we are just not moved by that fluffy price to revenues ratio of nearly 10, combined with a PE on even next year's projected earnings of just short of 100, numbers which in today's markets are almost unheard of even among Internet stocks. Although things do appear to be stabilizing in the economy over the past several weeks, we don't expect the advertising market to really recover anytime soon, and on top of that the one-year chart on YHOO shares suggests to us that a re-test of the $10 level could really be in the cards in the near future.
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As of August 21, just two days after our profile, the GM September 47.5 call traded at $2.40, up 60% in just half a week! Meanwhile, on August 28, the YHOO 12.5 puts traded way up at $3.40, up a whopping 372% in just over a week!
SL Insider FREE Call Option 7/3/02: E-Trade (ET, Current Price $4.95) July 5 call for $.35. Although we have been big on the e-brokerage puts throughout much of this year, trading volume appears to us to have picked up a bit of late and we bet this will be good news for the beaten-down on-line brokerage sector, and in particular the leader of the pack, E-Trade (ET). ET seems to be clearly the best positioned player in this ever-thinning group due to number of accounts as well as funds under management and breadth of offerings on-line. And the bottom line is, the markets have just now experienced ten consecutive days of above-average trading volume for the year, reversing a noticeable trend from earlier in the year. Ten days in a row of above-average volume, and no reason to believe that will stop anytime soon...sounds to us like some earnings estimate beatings are in order for this group, and for on-line trading leader ET in general.
SL Insider FREE Put Option 7/3/02: Network Associates (NET, Current Price $17.70) July 17.5 put for $1.30. For our FREE SL Insider put option this week, we went looking for a company which is reporting earnings soon, and which we think could have some bad news coming with that report. Naturally we turned first to tech, and from there we ran into NET, an old darling of ours who lately has become mired in some accounting concerns, earnings misses and a hostile takeover of former spinoff McAfee (MCAF), which deep down has much of the overall earnings power and revenue growth that NET actually controls. With all these factors looming, and with earnings scheduled for Thursday, July 11, we think now might be the time to jump in on a somewhat risky play that should really only move up if the broader market at large puts on a solid rally through Q2 Earnings Season which begins in mid-July on Wall Street.
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As of July 11, just eight days after our FREE option profile, NET shares tanked, sending our July 17.5 puts as high as $4.10 apiece, up 215% in a week!
SL Insider FREE Call Option 6/17/02: Transocean Sedco (RIG, Current Price $33.95) July 35 call for $1.40. As it becomes increasingly hard to find a profitable call option with the markets crashing around us, we turned this week once again to the oil sector, with global tensions and violence seemingly on the increase once again in recent days and weeks, both in Israel, India, Pakistan and now Iraq with the latest word out of Washington, DC. RIG, the second-largest oil service company we follow, has seen its shares drop around 15% over the past month as crude prices have sagged a bit, and are down some 33% from their annual highs one year ago, and although the price-to-revenues ratio is a rather high 3.6, this is actually pretty good given that RIG is positioned in a typically high-multiple and volatile industry. From the one-year chart, we think a move back to the $40 range over the next several weeks is by no means out of the question.
SL Insider FREE Put Option 6/17/02: Circuit City (CC, Current Price $20.79) July 20 put for $1.10. Our first target for a put option this week was in the retail sector, where investors have been bulls for most of this year despite the growing number of layoffs and the ever-increasing pace of consumer debt, and with the latest retail sales figures for the month of May dropping nearly 1% from April's levels, we think many of these stocks are in for some sort of correction over the coming weeks. CC worked for the StockLab.com Insiders as a subscription put option a few months ago, and now we're back for more ahead of the company's Q2 earnings report scheduled for June 18, 2002. We think electronics could be one of the hardest-hit areas if the consumer indeed does slow down its purchasing here, due especially to the luxury nature and generally high prices of electronics and related equipment which comprise Circuit City's general product base. And the bottom line is, CC management has not demonstrated over the recent past much of an ability to withstand hard times. We like the option prices given that we can get five full weeks of exposure to CC downside for just over a buck.
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On June 21, just four days after our option profile, the CC July 20 put traded at $1.85, a 68% profit in less than a week! Meanwhile, the RIG July 35 call also gained 29% to $1.80 apiece on 6-17, the very same day as our RIG profile.
SL Insider FREE Call Option 6/3/02: American Airlines (AMR, Current Price $20.95) August 22.5 call for $1.25. After dropping precipitously following the 9/11 disaster, the airline stocks rallied smartly from late September through early March in a very impressive spike as travellers returned slowly but surely to the skies. However, you take a look now and these stocks have suddenly lost most of those recovery gains as labor issues, crude prices and concerns over long-term profitability continue to haunt the industry. AMR is the U.S.'s #2 airline, and the stock which traded in the mid $30's before 9-11 sank to $15 in November, rose back to $30 in early March, but is now back around $20 and looks to us to be building a decent base here over the past month or so, which typically bodes well for another rally to come, absent of course any new safety glitches with the nation's air traffic system. All things considered we think a buck and a quarter is a good price and a decent shot at making our 30% profit target.
SL Insider FREE Put Option 6/3/02: General Electric (GE, Current Price $31.14) July 30 put for $1.05. Sure, GE is one of the biggest and best companies out there in the marketplace, but lately this stock in particular has stood out as a real non-performer even when the market has temporarily ticked higher over a few days recently on Wall Street. Aside from touching $34 a share briefly a few weeks ago, GE shares have really been lingering right around their post-attack closing lows of $30.30 a share, and at this point with the markets once again looking week and GE sitting just over $31, we think it's a good gamble that GE will in fact re-test and possibly fail, crossing below its September support levels and probing to fresh multi-year lows, following in the footsteps of fellow Dow tech bellwether IBM (IBM). For basically a buck we will take our chances on this technical breakdown occurring, even though it would probably be a bad thing for the markets as a whole.
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On June 5, just two days after our profile, GE shares indeed fell to a fresh 52-week low along with the Dow Jones Industrials Average, lifting our GE July 30 put as high as $1.75, for a solid 67% profit in less than 48 hours!!
SL Insider FREE Call Option 5/14/02: Parker Drilling (PKD, Current Price $4.62) July 5 call for $.25. You may not have heard of this company, but despite its sub-$5 price the company is still worth over $425 million, a noticeable player in the lucrative oil drilling marketplace with around $500 million in annual sales. We continue to like oil shares at this time, with the recent Israeli referendum against any kind of official Palestinian state only increasing our belief that the next move for crude prices will be up, which is typically good news for the volatile oil service sector on Wall Street. Plus, any professional investor would tell you that so far this year, it's been the small- and mid-cap stocks that have performed best, and to the extent that is going to continue as investor confidence in the big names remains low, a play on PKD is a good way to get in to that space. And lastly, and least importantly, if you take a look at the chart on PKD, we see three increasing spikes, each around 12-13% above the previous high -- one at $3.60 on 10/29/01, one ten weeks later at $4.10 on 1/8/02, and then another nine weeks later at $4.70 on 3/7/02. As of today, we sit at ten weeks from that last high, this stock briefly closed at a new high of $4.74 just recently on May 3 before moving slightly lower, and we've been forming a higher base over the past two weeks since that high was set. For a quarter we are in on this stuff.
SL Insider FREE Put Option 5/14/02: Gap Stores (GPS, Current Price $16.19) June 15 put for $.50. This week we decided to look for a put option on one of the few major companies which will be reporting its quarterly earnings within the next short while, and we settled on Gap (GPS). Gap reports earnings this week, on Thursday, May 16, and we view this as a potential catalyst in the shares, which have responded positively to earnings of late, but which we think could still have some downside as the stock sits at a lofty PE of 65, and that is based on next year's earnings estimates, not the past year which saw the company's net income slightly in the red. This is a good price for a month's worth of play in a high-profile retail stock, including an earnings report more than a month before expiry.
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On May 22, just over a week after our profile, Gap's CEO announced his retirement, sending GPS shares lower and lifting the GPS June 15 put as high as $1.70, a stunning profit of 240% in eight days!!
SL Insider FREE Call Option 4/30/02: General Electric (GE, Current Price $30.85) May 32.5 call for $.35. This is purely a technician's play....GE closed Monday evening at $30.85, and $30.37 is GE's closing price on September 20, 2001, the week after the attacks. Right now we're staring right down the barrel of a re-test of the September lows for the largest company in the world. If you're on the market for a profitable call option because you think the major averages are going to rebound from what could very likely be described as oversold conditions, then this could be the stock option for you. Remember, the markets have been down in 7 of the last 8 sessions, so a tradable bounce could be forthcoming.
SL Insider FREE Put Option 4/30/02: SAP (SAP, Current Price $32.00) June 30 put for $1.30. SAP, Germany's leading provider of comprehensive software solutions to businesses, intrigues us because it is still looking awfully pricey to us here at StockLab.com. Even though the shares are down over 20% from their annual high of close to $41 a share, SAP still traded at a sizable 6 times annual revenues, and a whopping 84 times trailing earnings, 40 times next year's earnings. None of this impresses us in a sector, especially (1) where we perceive a good deal of weakness, (2) in a country where we expect the global troubles to be felt particularly strongly, and (3) at the current Q2 earnings estimates of $.15, which call for a 50% sequential growth in profits for the company. To us this sounds like a disappointment waiting to happen.
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On May 1, just ONE DAY after our profile, the GE May 32.5 call traded at $.60, up an astonishing 73% in just over 24 hours! Meanwhile, on May 4 our SAP Jun 30 puts traded up at $2.05 a share, for a five-day profit of 58%!!
SL Insider FREE Call Option 4/16/02: McDonalds (MCD, Current Price $27.40) May 27.5 call for $.75. We think restaurant shares are another group which could do well over the mid-term as the domestic U.S. consumer economy remains strong despite weakness in the enterprise segment and in technology in general. Despite some problems with over-expansion in the U.S., the bottom line is that fast food is a tasty and cheap alternative to a great many people around the country, and the trend looks to us like it will be up over the next few months.
SL Insider FREE Put Option 4/16/02: JPM Chase (JPM, Current Price $35.50) May 32.5 put for $.60. Financials is a sector which, although we do like the group in general, we think is likely to remain weak currently as earnings in the group continue to show a beaten-down investment banking business as well as limited trading / commission gains as volumes have remained light in Q1. Plus, JPM seems to be running into a number of integration issues following the merger of JPM and Chase Manhattan last year, and the valuation seems to us to leave room for some further weakness fromt the $35 level, making the put options attractive over the near-term.
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On April 18, just two days after our option profile, the MCD May 27.5 calls traded at $1.55, up over 107%!
SL Insider FREE Call Option 3/25/02: Phillip Morris (MO, Current Price $53.49) May 55 call for $1.05. Tobacco is king, at least when it comes to "stickiness" -- or how much consumers tend to hang on to their purchases of a product even as the economy slows. At $115 billion, MO is valued almost exactly the same as SBC (SBC), our FREE put profile this week below, but in contrast to SBC, MO's annual revenues are around $90 billion and are growing in the low double-digits even in a slowing economy. While the stock is just under its 52-week high of $54.48, we would not be surprised to see MO shares advance well above these levels during the coming year on Wall Street.
SL Insider FREE Put Option 3/25/02: SBC Communications (SBC, Current Price $37.92) May 35 put for $.40. Looking at the one-year charts, it seems clear to us that the problems in telecom are probably not yet over, and SBC is one such chart which looks to us like it could be ready to make a run to below long-term support around $35 a share. This is a $127 billion company with annual earnings of around $7 billion and growing only in mid-single digits annually by our latest estimates. And the sector is undergoing major problems, and we think prices will continue to drop while demand among enterprises remains soft for the time being. The May 35's seem to be the best overall offer to us, but we liked a whole range of the SBC puts within the next few months.
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SL Insider FREE Call Option 3/12/02: Saks (SKS, Current Price $12.60) August 12.5 call for $1.25. With the economy ostensibly in rebound, we reason that retail should continue its slow push forward, in particular the department stores which have joined the large discounters in putting in the strongest performance thus far over the past 6 months or so on Wall Street. Plus, we like the department store sector especially much due to the recent emergence of merger rumors between big players Federated (F) and May (MAY) which could combine the owners of Filene's, Bloomingdale's and Macy's all under one corporate entity.
SL Insider FREE Put Option 3/12/02: Hewlett-Packard (HWP, Current Price $20.98) April 20 put for $1.40. We were surprised when we saw how cheap this option was, given the clear near-term volatility in HWP stock due to the ongoing proxy battle for control of rival Compaq Computer (CPQ) by HWP's current CEO, for which there will be a key shareholder vote on March 19-20 which will decide the fate of the merger. So the catalyst is there, and if we had to bet, we would bet that the merger just squeaks by with the required majority vote, and that HWP shares decrease somewhat on the news of the takeover, and likely heading into the vote on anticipation of the outcome.
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SL Insider FREE Call Option 2/25/02: Baker Hughes Intl (BHI, Current Price $35.15) April 37.5 call for $1.40. Again we like the oil sector as one of the few areas which we think could exhibit some strength despite the recent jitters in the marketplace, as oil prices should already have a bottom set, and these are typically defensive issues which don't lose as much of their value as other growth-oriented shares in times of financial weakness. After looking at Noble (NE), Transocean (RIG) and a few other oil service firms (typically more volatile than oil production stocks), we decided that the BHI calls bear the best price in relation to the likelihood that the stock will respond and move in the direction we're expecting.
SL Insider FREE Put Option 2/25/02: Motorola (MOT, Current Price $11.80) July 10 put for $.75. Telecom is still one of our favorite put option targets, with a weak performer like MOT among our top picks as this company has had a real bear of a time actually meeting its earnings estimates over most of the past 8 to 10 quarters. A drop back to $10 would bring MOT's market cap back down close to $20 billion, but with $3.5 billion in losses in 2001 on revenues which dropped 20% year over year, this sounds like a real possibility to us. And with MOT shares so cheap, the options carry prices which we can do something with.
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SL Insider FREE Call Option 2/11/02: Northwest Airlines (NWAC, Current Price $14.85) September 17.5 call for $1.60. Airline stocks have slowly been trending up since losing roughly half their value after the market reopened following the 9/11 terrorist aircraft attacks in the United States, and we think NWAC is a great way to play this continued trend over the next several months for a good price. NWAC is our favorite airline by a mile due to its very favorable valuation -- the company's $1.2 billion market cap compares very favorable with its $10 billion in earnings last year, for a stunningly low price:sales ratio of less than 0.2. Meanwhile, NWAC has been one of the better-performing airline stocks since even before the terror attacks, and we think that the cheap prices of this longish-term option represents an excellent opportunity to profit at a relatively cheap price given the seven-month term of the play.
SL Insider FREE Put Option 2/11/02: Dell Computer (DELL, Current Price $26.80) March 25 put for $.70. DELL has Q4 earnings coming out on Thursday, February 14, and we think that makes this week a good time to jump in on some well-priced DELL puts. Despite remaining down more than 50% from its all-time highs, DELL shares continue to carry a price:sales ratio of better than 2, even though revenues are dropping slightly year-over-year, and earnings plunged 56% in fiscal 2001. We figure this is a decent shot at a possible cautionary profit report later this week, when we could already be in and out given how cheap this option play is.
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SL Insider FREE Options 1/28/02: Today we have a special set of FREE StockLab.com Insider stock option profiles, in that both our put and our call profile are on the same stock. This is called a straddle, and the idea is that some catalyst will cause the stock to move in either direction (it doesn't really matter which), and that we can make our 30% profit on the total straddle and get out by profiting enough on gains on just one side of the straddle position. This week we like multinational home products company Gillette (G, Current Price $32.28), specifically the G March 35 call for $.30 AND the G March 30 put for $.45. Gillette will report its Q4 earnings on January 26, 2002, and we are hoping that this earnings report and the succeeding near-term response in the market will carry G shares a couple dollars in either direction sometime within the next seven weeks. A whole lot can happen to an individual stock in seven weeks, especially to Gillette with its PE of 35 despite reporting declining revenues and earnings over the past year on Wall Street. Remember, look at the straddle as one position when evaluating whether or not to sell the position -- once we can get out of both with our 30% profit target, we're going to do just that.
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SL Insider FREE Call Option 1/7/02: Plug Power (PLUG, Current Price $8.99) March 10 call for $1.05. PLUG is the second-largest player in the emerging area of fuel cell technology, an alternative source for energy that is not nearly as costly and is far more efficient than gasoline and most other usable fuels. Although this and the other companies in the industry are still in their early stages, revenues are growing for PLUG, and the rising tensions in Asia should only serve to increase the nation's and the world's interest level in energy sources that would enable the Western world to free itself from its dependence on the Middle East for oil. Especially if the global economies respond to America's stronger than expected December, we think PLUG calls could turn a quick profit.
SL Insider FREE Put Option 1/7/02: Eastman Kodak (EK, Current Price $28.89) April 25 put for $1.25. The photo imaging industry is taking a beating, mostly at the hands of the digital revolution and mainly at the expense of the old-timers, the Polaroid's, Xerox's and EK's of the world (Polaroid recently declared bankruptcy, and Xerox is likely not far behind). Although EK is valued around a not-so-lofty one times earnings, revenues are down nearly double-digits year over year, and earnings dropped more than 75% as demand slows and costs rise, and we see no reason to believe that Q4 will be any better for EK.
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