JDSU’s Been A Black Hole For The Telcos, But Creates Some Nice Opportunities… 

     

These are some pretty ugly sell offs, coming as they do, on the heels of an
extremely bearish Friday. We like a number of strategies to take advantage of
this sector-wide capitulation. First, in JDSU, we like buying the September 10
calls for $2.85 and selling the September 15 calls for $.85. Intrinsically, that
$5 bull call spread is worth the $1.23, as the $10 calls give the buyer the
right to buy the stock at $10. That means we’re only paying $.77 in extrinsic
premium to own JDSU from $10 until we cap our upside at $15. A move back to $15
or higher would mean that our $5 bull call spread would be worth that full $5 at
expiration, a $3 return on our $2 investment.

      

Another attractive example of a limited risk buying opportunity is available in
OPWV. We could buy 10 of the OPWV August 25 calls for $5.50 and sell 10 of the
OPWV August 35 calls for $2.05, or a net of $3.45 before taking account of
commissions. Thus, we’d have upside participation in OPWV between 25 and 35 (a
$10 bull call spread executed 10 times) for a mere $3,450. If OPWV closes $35 or
higher on August expiration, we turn that $3.45 investment into a profit of
$6.55, or nearly a 190% return.