Sonic Solutions: Easy options opportunity
Today's Financial News - Posted September 23, 2009
Sonic Solutions (NASDAQ:SNIC) has soared over the past six months. Is now the time to buy? Savvy investors are checking out this easy options strategy.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Battles for dominate, market-accepted technology are rarely good for the companies mired in the fight. Sony’s (NYSE:SNE) torturous foray in the VHS versus Beta battle is a perfect example.
But a divided market is not always bad.
Just ask Sonic Solutions (NASDAQ:SNIC) shareholders. As the entertainment industry slowly figures out if DVDs or Blu-ray technology will dominate the video world, Sonic’s shareholders had the chance to rake in a fortune.
Shares of the $175 million company have soared by 1,050% over the past six months as the global economy rebounds and Blu-ray production increases.
As the go-to firm in Blu-ray production technology, Sonic is embarking on an era of strong growth. Earlier this week, the company announced a list of nearly two dozen European firms that are now using Sonic platforms.
European growth?
The growth comes as authoring facilities increase their Blu-ray production to meet the split demands of the world’s consumers. Until one platform becomes the accepted winner, Sonic will benefit from the dual revenue streams.
Investors interested in this company should be aware of several factors before making the leap.
The first should be obvious. After such a remarkable six-month climb, any negative news event could instantly erode recent growth. In the software industry a new competitor or the advancement of stronger technology can easily send even the strongest of players to the end of the line.
Shares of the company are up by nearly 20% this week, making it a good time to sit back and wait for a better buying opportunity.
Another important variable for the company and its shareholders is the next set of quarterly earnings figures.
Shares surged in August when the company announced a solid quarter (it lost just $1.8 million). If the momentum is not carried through the current period, investors will quickly lose their willingness to pay a premium for the position.
Room for more
When a stock starts to get top heavy, as an options investor, one of the first things I look at is the possibility of a covered call position.
Sonic is ripe for the taking.
As I write, savvy options investors could have a shot at low-risk gains in the neighborhood of 45% by selling out-of-the-money calls and using the premium to buy the underlying stock. It is a relatively safe play (by selling options, you are creating a layer of insurance), with a strong upside.
As the Dow approaches 10,000 and the third quarter comes to an end, volatility and resistance will be on the rise. Now is the time to lock in a smart strategy to take advantage of the situation.
If you are interested in a covered call strategy that is already worth gains of 20% (we just entered it yesterday), check out TFN Strategic Trader. There’s a good chance Sonic may be in our portfolio soon.
Next Article: Will Q4 earnings boost Tianyin Pharmaceutical, Inc., (NYSE:TPI)
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