EOT Trade Alert – April 21, 2011

Corey Williams | April 21, 2011

April 21, 2011

Trade Alert:

Buy MIPS October 2011 $11 Calls at $1.55 or better

Company Background:

MIPS Technologies (MIPS) is a semiconductor company. They’re a leading provider of industry-standard processor architectures and cores for digital consumer, home networking, wireless, communications and business applications.

Short-Term Catalyst:

MIPS is making a name for themselves in mobile computing.

According to MIPS management…

“MIPS Technologies has a growing footprint in the mobile arena… The high performance, power efficiency and scalability of the MIPS architecture make it ideal for applications ranging from mobile handsets to mobile infrastructure.”

In other words, MIPS is winning contracts and growing their business.

Their components are already found in many products from companies like Sony(SNE), Hewlett-Packard (HPQ), and Cisco Systems (CSCO). But the real growth is in the mobile arena. And MIPS is an emerging player in this lucrative field.

Right now their chip sets are gaining momentum with mobile networks and with mobile devices running Google’s (GOOG) Android operating system. But you wouldn’t know it by looking at their stock price. It’s been flat or down all year.

I think MIPS will rebound once they report fiscal 3rd quarter earnings next week.

Why?

MIPS management is working hard to keep a lid on expectations. They don’t want to see expectations become overly-optimistic. They know it’s better to manage expectations and consistently deliver better than expected earnings.

But it also put a lid on the stock price as analysts cut earnings estimates to be more in line with company guidance.

The good news is expectations are low. If MIPS delivers better than expected earnings… the stock should soar. And based on everything I’ve seen this quarter, I think MIPS will deliver better than expected earnings.

Let’s grab call options on MIPS now before they report earnings next week.

Trade Details:

Underlying Stock Symbol:	MIPS
Current Bid-Ask Price:	$1.20 – $1.45
Option “Buy Up To” Price:	$1.55
Break-Even On Stock At Expiration:	$12.55
Maximum Risk Per Contract:	$155

Exit Strategy:

MIPS is trading at $10.36 per share. Resistance levels will be at $15 and again at $17.50. Remember, we want this stock to move higher. Support levels will be at $9 and $6.50. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

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