Monday, January 28, 2008

Considering selling front month EMC puts

I have been looking at EMC for a while now. Not only does it own the majority of VMWare, its storage franchises are also the ones to beat. ZachStocks' recent post about VMW (VMWare (VMW) - A Creative Way to Own the Stock) explains the VMWare situation really well so there's no reason for me to do repeat it. I have been looking at selling some front month puts in EMC at the 16 and 15 strikes. In particular, I would be delighted if I could sell the Feb 16 for a credit of 1.75. That would give me a cost basis of 14.25 should I get assigned. Given my (dumb) propensity to hold assigned stock, I'd probably hold this for a while until the general market turned around.

From the 3 month daily chart, we can see that EMC has been trending down but has been finding some support at the 16 level. So this could either work really well or we could see EMC start another leg down. Nothing like trying to catch a falling knife for some excitement.

According to the Yahoo options tables, +EMCNQ (Feb 16 Put) traded at a high of 1.40 and is now trading at 0.53. We'll see what the market does next week. If we get a week like last week (entirely possible given the expectations for another rate cut), there is a good chance of hitting my target.

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