Money for nothing and your chips for free
Today's Financial News - Posted December 19, 2008
The semiconductor industry is reeling from a lack of demand. Revenues are down and so are share prices. But when Lam Research (NASDAQ:LRCX) announced trouble, its share price actually moved forward. Here is a way to take advantage of the situation.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): With credit tight, capital budgets even tighter and consumers locking their wallets and throwing away the key, American businesses are facing significant cuts to their revenue streams. Pull up nearly any ticker symbol and the lead headline will almost certainly be about reduced revenues or lowered expectations.
Nowhere is the trend more obvious than in the semiconductor business. If companies cannot afford to pay their employees, they certainly cannot afford the latest and greatest in computing technology. The lack of demand is hurting every chip-related company from Applied Materials (NASDAQ:AMAT) to Veeco Instruments (NASDAQ:VECO).
Money for nothing
One company worth taking a look at today is Lam Research (NASDAQ:LRCX). The company drastically cuts its fourth-quarter revenue forecast. Previously, it told us it was expecting sales as high as $315 million, but today revealed it looks like the figure may be as low as $270.That means nearly 20% of the cash it was expecting to see, never showed up.
With today’s figures, it looks like Lam could lose as much as a nickel per share during the current quarter. Last quarter profits were over $8 million and the previous three quarters each saw earnings of nearly $100 million.
That is a strong turnaround and share price has yet to fully reflect it. In fact, demand was strong enough for the company’s stock today that share price spent most of the day in positive territory. Over the past trading week, their Street value rose by nearly 5%.
Investors should not be buying into today’s news.
The action has created an opportunity for fans of covered calls. As I write, shares of the company are trading for just about $22 each. Lam’s March 25 Calls (LMQCE) are trading for $2.10.
By selling calls at or above that price and pocketing the premium, investors who own the underlying shares can create a decent buffer if/when shares begin to slide. Share price would have to drop below resistance levels close to the $22 mark before incurring a possible loss.
A covered call position is a great way to protect yourself from volatility over the next few weeks.
Take advantage of the situation and use a simple options strategy to boost your portfolio’s potential. When Lam’s momentum slows, you will be glad you did.
Next Article: Another Chance to Make Big Profits in Costa Rica… But You Must Act Now
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