The Options Trader
105 W. Monument Street
Baltimore, MD 21201
Tuesday, May 25, 2004
Email – #171
** Two for Less Than $2… Total
The power of LEAPS never ceases to amaze me. I have been
following these two “losers” you are about to read about for
years. The best that can be said is that they are survivors. The
worst is that they could both be out of business in two years.
However, all it would take is just one of them to truly reach its
potential for us to rake in a major hit.
Each one is in a different sector, one in communications and one
in energy. BOTH ARE SPECULATIVE!
The first one is Lucent Technology (NYSE: LU). It is a dominant
global player in communications equipment and technology.
Recently, the company reported financial numbers that showed
strong promise of a turnaround in its business. Yesterday, Lucent
purchased a privately held company that is on the forefront of
VOIP – voice over IP, the burgeoning protocol that allows you to
make phone calls over Internet Broadband to anyplace in the
world, as long as you have electricity and a broadband
connection. This is the future of telephony, and Lucent is right
there providing the equipment.
On the fundamental front, Lucent is in very good shape to survive
through the next few years. It has pared down its debt (it
continues to pay it down), it will be cash-flow positive and
profitable this year, and it is actually seeing growth in its
business. As for valuation, it is trading at about 1 times sales
- quite reasonable, even for this dog.
If the market for communications gear picks up steam in the
months ahead (Lucent has operations and sales in foreign markets,
especially China) then the market will revalue the company based
on positive fundamentals. The shares would probably be trading
higher right now, were it not for the shadow cast on the sector
by Lucent’s evil twin, Nortel, which is experiencing major
credibility problems.
Buy the Lucent January 2006 $5 LEAP CALLS. The symbol is YXL-AA.
The current price on this liquid option is $0.55 – DO NOT PAY
MORE THAN $0.55. There is no stop-loss on this position – it
would cost more to get out than the commissions!
The second pick of the dogs is Dynegy (NYSE: DYN). Dynegy is a
producer and deliverer of energy including natural gas and coal.
The company is a true turnaround play in the industry. They have
a new management team led by industry veteran Bruce Williamson,
over $1.3 billion in cash, a profitable first quarter, agreements
to sell a massive facility to Ameren to further reduce debt, and
they are projecting free cash flow of close to $500 million for
the year, more than enough to cover debt. So why is the stock
trading at $4 and change?
A couple of months ago a former senior executive was sentenced to
24 years in the pokey for fraud in connection with the power-
trading fiasco that occurred back in the ENRON days. The Street
is also waiting for Dynegy to show that it is not just a one-
quarter turnaround – that its business has legs. The shares have
been trading well of late, and the company is making all the
right moves. If it comes through, the shares could be trading
upwards of $7 to $8 this time next year. The price will be
affected by several factors including energy prices, the closure
of the Ameren deal and continued progress reflected in the Q2
numbers.
Buy the Dynegy January 2006 $5 LEAP CALL options. The symbol is
YNY-AA. The calls are trading at $1.05 on the offer – DO NOT PAY
MORE THAN $1.10. We will use $0.50 as our initial sell-stop.
These options are $0.80 out of the money and imply that the
shares need to move strongly over $5 for us to make money. In
truth, the shares just need to move toward $5 in the next few
months for us to make over 50% – we have a ton of time left and
that plays in our favor.
For those of you who are looking for answers about OIL,
CURRENCIES and PRECIOUS METALS, I invite you to join me at a
conference I am hosting in July in San Diego. We will have some
to the best minds in the business, with proven track records, in
attendance as speakers. Click on the link below for more
information. http://www.agora-inc.com/reports/300SCONF/F300E703/
Or for more information or to sign up please call Event Manager
Jayla Watje at 1-888-799-0463 or 410-454-0413
Regards,
Karim Rahemtulla
———————————————————-
Current Portfolio:
Company / Symbol: Motorola (NYSE: MOT)
Option / Symbol: Jan 06 $20 call (WMA-AD)
Date Purchased: 5/5/04
Current Price: $3.80
Comment: Buy up to $3.70. TS is $1.85.
Company / Symbol: Lockheed Martin (NYSE: LMT)
Option / Symbol: Jan 06 $55 call (WLA-AK)
Date Purchased: 4/7/04
Current Price: $2.70
Comment: Hold. Sold call against Jan 06 $50 position.
Company / Symbol: Lockheed Martin (NYSE: LMT)
Option / Symbol: Jan 06 $50 calls (WLA-AJ)
Date Purchased: 3/15/04
Current Price: $4.50
Comment: Hold. No trailing stop.
Company / Symbol: Yellow Freight (Nasdaq: YELL)
Option / Symbol: Jan 06 $40 calls (YBQ-AH)
Date Purchased: 4/7/04
Current Price: $3.45
Comment: Hold. Sold call against Jan 06 $35 position.
Company / Symbol: Yellow Freight (Nasdaq: YELL)
Option / Symbol: Jan 06 $35 calls (YBQ-AG)
Date Purchased: 3/10/04
Current Price: $5.60
Comment: Hold. No TS.
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Sell Jan 06 $25 call (YDI-AE)
Date Purchased: 4/1/04
Current Price: $1.10
Comment: Hold. Sold call against Jan 06 $20 position.
Company / Symbol: Placer Dome (NYSE: PDG)
Option / Symbol: Jan 06 $20 call (YDI-AD)
Date Purchased: 1/23/04
Current Price: $1.80
Comment: Hold. No TS.
Company / Symbol: Hewlett Packard (NYSE: HPQ)
Option / Symbol: Sell Jan. 06 $30 call (WPW-AF)
Date Purchased: 2/3/04
Current Price: $0.80
Comment: Hold. Sold call against Jan 06 $25 position.
Company / Symbol: Hewlett Packard (NYSE: HPQ)
Option / Symbol: Jan 06 $25 call (WPW-AE)
Date Purchased: 12/10/03
Current Price: $1.85
Comment: Hold. No TS.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Sell Jan 06 $30 call (WIK-AF)
Date Purchased: 2/9/04
Current Price: $0.20
Comment: Hold. Sold call against Jan 06 $30 position.
Company / Symbol: Nokia (NYSE: NOK)
Option / Symbol: Jan. 06 $22.50 call (WIK-AX)
Date Purchased: 8/29/03
Current Price: $0.55
Comment: Hold. No TS.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Sold Jan 06 $15 call (WZY-AC)
Date Purchased: 11/6/03
Current Price: $2.20
Comment: Hold. Sold call against Jan 06 $12.50 position.
Company / Symbol: Chesapeake Energy (NYSE: CHK)
Option / Symbol: Jan 06 $12.50 call (WZY-AV)
Date Purchased: 7/28/03
Current Price: $3.30
Comment: Hold. No TS
Company / Symbol: S&P 500 MITT (AMEX: MCP)
Date Purchased: 7/18/03
Current Price: $10.25
Comment: Buy under $10. No TS
———————————————————-
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