The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday August 4, 2004
Email – #188
** Lies… and More Lies
After the close of trading yesterday, Ciena (Nasdaq: CIEN) pre-announced that it would have a revenue shortfall. Just a few weeks ago, the company’s CEO publicly announced that the company would see a 30% gain in revenues this quarter.
Notwithstanding the fact that we have a two-and-a-half-year option on our hands, I cannot deal with such a blatant misstep. If there was a reason other than this one – like the general market falling, or a political event that was out of the ordinary; then I would sit tight with SO much time left.
However, in this case, if a management team cannot look forward even a few weeks, then it is obvious that they should not be in place. Ciena is in no danger of going out of business – it has over a billion dollars in cash on the books. But, I fear it is in danger of being VERY dead money for quite a long time.
We have a couple of turnaround situations in our portfolio – very cheap bets based on competent management and results that are better than expected. Lucent and Dynegy come to mind. In both those cases, the companies have come through with flying colors – it is just a matter of time before the shares react positively and make us money.
In the case of Ciena, I think the company – whose insiders were buying shares recently in the $3′s – just cannot be trusted going forward.
We reduced our cost on Ciena a couple of weeks back when we sold the January 2005 $5 calls (EUQ-AA) against our position. You will need to buy these calls back. They are currently trading for $0.05. Then you should sell your Ciena January 2007 $5 call options (VCB-AA). We will recoup some of our investment thanks to the sale of the 2005 options and the huge amount of time left on the 2007 $5 calls.
Regards,
Karim Rahemtulla
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Bio:
Karim Rahemtulla is the former Investment Director of The Oxford Club.
The editor of The Smart Options E-Report, The Income Trader – A Covered
Call Strategy and The LEAPS Option Trader, Karim is also a regular
contributor to The Oxford Club Communiqué. His highly successful trading
systems use covered calls and LEAPS to boost returns on blue chip stocks,
and during the bear markets of 2000 and 2001, his picks outperformed the
major market averages. Educated in England, Canada and the U.S. and fluent
in several languages, Karim travels the world to find the best investment
opportunities for our members.
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