EOT Trade Alert – July 30, 2009

| July 30, 2009

July 30, 2009

Trade Alert:

   Buy STEC Aug $40 Calls at $1.60 or better (SQRHH)

Company Background:

STEC (STEC) designs, develops, and manufactures computer storage products.  Their products use a variety of technologies including Flash Memory, SRAM, and DRAM.

Short-Term Catalyst:

We’ve all seen the well run and growing tech companies blow away earnings estimates this quarter.  Identifying companies with a good chance of beating estimates has produced some big winners for us.

We’re taking this one in the same direction.  But this time it is going to be the guidance about future earnings that should make the stock explode.

STEC is absolutely on fire right now.  I don’t see this changing anytime soon.  Here’s why.

They essentially have a monopoly on solid state drives.  A solid state drive is a computer hard drive without any moving parts.  This technology is taking over the high end storage market and will eventually replace the standard disk drive as the primary storage device.

A new drive designed for use in servers is going to be the catalyst for big profits.  The drive cuts the amount of energy needed to power a server dramatically.

The development of this chip has allowed them to lock up the customers who will be the primary users of their products.  Because the technology is still in the early stages of implementation, there is a lot of room for sales growth to their primary customers.

I’m expecting their guidance for full year and next quarter earnings to blow the doors off analysts’ estimates.  And when that happens, the stock price should jump.

Trade Details:

Option Ticker Symbol: SQRHH
Underlying Stock Symbol: STEC
Current Bid-Ask Price: $1.35 – $1.50
Option “Buy Up To” Price: $1.60
Break-Even On Stock At Expiration: $41.60
Maximum Risk Per Contract: $160

Exit Strategy:

STEC is trading at $35.89 per share.  Resistance levels will be at $40 and again at $41.50.  Remember, we want this stock to move higher.  Support levels will be at $31 and $27.50.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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