Dipping Back Into SEBL
The good news for the bulls
came in the form of the US Wholesale Price Index (widely known as the PPI),
which showed NO INFLATIONARY PRESSURE, as prices posted their biggest decline in
eight years. In other words, you have to go all the way back to 1993 to see
wholesale prices contract by this much. Clearly, this report will go a long way
toward keeping the Fed in the loosening rather than tightening mode and
ultimately, should spark some positive reaction sooner rather than later.
Of course, we’ll get a clearer picture next Tuesday (August 14)
when we get Retail Sales numbers, followed by Industrial Production
and Business Inventories on the 15 and CPI on
Thursday the 16.
As to the best option-related trading opportunities, we again favor Siebel
Systems
(
SEBL |
Quote |
Chart |
News |
PowerRating) as the stock price is approaching its April lows.
Thus, an equity investment combined with a fat premium sale could really create
some nice short-term profits. To wit:
Some traders are looking to buy SEBL for $27.10 and
the November 27 ½ Calls for $5. That call, trading for about 91%
volatility, will provide 18% downside protection. Since the 27 ½ Calls are 100%
extrinsic value, they’re really getting a nice cushion against a further slide
below the April lows for SEBL.
While they needn’t hold the position until expiration, this Covered Write could
certainly yield some nice returns in the next three months. Their downside
breakeven is the $27.10 investment minus the $5 credit for the call sale, or
$22.10. If SEBL closes above 27 ½, their $22.10 investment would be worth $27 ½, or a $5.40 profit before taking
commissions into account. A 24% return in three months looks pretty attractive any
time, especially at a time when three-month CDs are yielding a mere 3.4%.