EOT Trade Alert – June 24, 2011

| June 24, 2011

June 24, 2011

Trade Alert:

   Buy STEC November 2011 $17 Puts at $2.30 or better

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:

Technology stocks are out of favor with investors right now.  This provides a great opportunity to go short a technology stock likely to disappoint investors.

And I think STEC will shock investors when the report weak earnings in August.

Here’s why…

STEC is a leader in the solid state drive market.  Solid state drives are computer hard drives without any moving parts.  The technology is taking over a huge chunk of the high end storage market.

The problem is the majority of their revenues come from just a few big customers.  And when those customers don’t buy… STEC misses estimates… and they usually miss badly!

Simply put, STEC has a history of disappointing investors.

In fact, they already gave disappointing second quarter guidance when they reported first quarter earnings.  And based on the recent reports from other tech companies like Oracle (ORCL) and Micron (MU) hardware sales are going to be weak this quarter.

What’s more, STEC is locked into a strong downtrend.

STEC has been trending down since February. And it’s fallen below the important 200-day moving average.

Over the last month, STEC has tried and failed to overcome this important technical level.

Now, the 200-day moving average is stiff resistance.  We’ll often see weak stocks like STEC bounce back up to the 200-day moving average after the initial thrust below it. But if the stock can’t retake the 200-day moving average quickly, the stock usually moves lower in a hurry.

Let’s grab put options on STEC now to profit from the next leg down.

Trade Details:

Underlying Stock Symbol: STEC
Current Bid-Ask Price: $2.13 – $2.19
Option “Buy Up To” Price: $2.30
Break-Even On Stock At Expiration: $14.70
Maximum Risk Per Contract: $230

Exit Strategy:

STEC is trading at $17.21 per share.  Resistance levels will be at $19.50 and again at $22.  Remember, we want this stock to move lower.  Support levels will be at $14.50 and $12.  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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