In the May 28th issue of Barron’s, Tiernan Ray wrote an interesting article entitled “Summer Meltdown Unlikely for Tech”. I’ll list some of the highlights and quickly move to this picks I thought were worth a closer look.
All investors know the cliche, sell in May and go away. Tech stocks don’t typically do well in the summer, but Ray writes “it’s unlikely to experience a dramatic selloff akin to last summer’s rout… Before any correction happens, bearish investors will likely first bid up shares.” If this is true, those of us who sell naked puts and covered calls could find a few more months to ride the wave.
He continues, “Negative sentiment is hitting all-time highs, as measured by such things as short interest on the NYSE. The cynicism looks like a contrarian indicator, suggeting sotcks will rise further in the next few months. Tech investors, especially, would reap benefits if this occurs, given that the sector has merely traded in line with the broader market this year.”
Ray lists a few interesting stock picks and I’ve narrowed those down to the ones that seem to match my style better, CSC, CY, ELON and ARRS. I have a fairly busy work day today so I’ve only glanced at these for now and will try to come back later with better focus to trade on one or two. For now, these are my early thoughts without considering fundamentals yet:
Computer Sciences Corp (CSC): has fallen below 10 and 20 moving avgs, but is above 50 day. If the 50 day holds, then an OTM covered call might be a good move.
Cypress Semiconductor Corp (CY): has fallen below 10 and 20 moving avgs, but is above 50 day. CY also has possible support from its rising trend line of higher lows. Premiums aren’t very high for now since it’s half-way between strikes. If it finds support an OTM covered call or ITM naked put might work.
Echelon Corp (ELON): has been on a roll since February and could keep flying. The premiums for the OTM calls show that to a strong belief. Depending on how it moves today I might consider ITM naked puts at 17.50 or OTM covered calls at 17.50. I’m leaning towards the latter right now.
Arris Group, Inc (ARRS): is above 10, 20 and 50 day moving avgs, trend lines look good. I think the July 15 puts might be right for ARRS.
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I traded ARRS once a few months back I think and made a little money, i think it has good volatility. Also, i feel better today, I got rid of WalMart last night for a little profit and reduced my margin account to manageable figure. So just own 3 stocks, one very tiny amount, so i don’t care which way the markets go between now and july. my calls help me. i can relax a bit.
Nothing wrong with some profit taking. I have a limit out there for ARRS if it dips some I’ll sell 4 naked puts at 15 for .50. I haven’t placed any orders for the others yet. CSC dropped 1.28 after I wrote my post.