We are proud to say that we are the only options service available to retail investors that provides state-of-the art volatility forecasts on virtually the entire equity options market (2,500 + common stocks). These volatility forecasts are important, because they tell you whether an option is favorably priced for a particular strategy.
This week’s spotlight for option opportunities looks at International Business Machines (IBM), whose earnings for 2011 are now estimated by Value Line analyst Theresa Brophy at $12.95 a share, which would be an increase of somewhat over 12%.
This week, we review the performance of our option and covered call ranks for our September quarter evaluation period, which ended 9/27/2011. This definitely was a good time to be “long volatility” (and, hopefully, to be a subscriber to our service).
This week, we kick off a new series of spotlights on option opportunities on individual stocks, starting with Xerox Corp (XRX). With the stock down 33% from end-June levels, and with a P/E ratio this is less than half the market’s, Xerox is steeply undervalued, according to our analysis. In looking at Xerox options, we see opportunities for covered call writes, cash-covered put writes, and outright longer-term call purchases.
This week, using calls on Intel Corporation (INTC) as examples, we show a suggested hedge for the underlying stock under current market conditions. Our model, finds some Intel options to be underpriced, and some others to be overpriced. You can get an edge by using these “mispricings” to your advantage when building a hedge.
With the recent sharp decline in the stock market, we need to roll 16 of the 20 short call positions in our portfolio to lower strike prices and/or to later expirations. The bad news, of course, is that the portfolio is down since quite a bit since we last rolled our positions (on 7/13/2011). The good news is that we are better off than the S&P 500 and the other benchmarks.