DELL Reports Tonight, Bearish Structure With Little Premium Outlay

by Dan May 17, 2011 3:15 pm • Commentary

DELL (16.10) reports after the close tonight.

-options market is implying about a 7% move* which is rich to the average ~5% move following the last 4 quarters.

-Given what we know so far out of HPQ‘s report this morning, and DELL’s reaction (stock up 80bps) I am hard pressed to see too many surprises in DELL’s results…..If investors didn’t think HPQ’s problems were company specific then I would imagine we would see some weakness today.

-That said I don’t have strong conviction on direction right now, and if you put a gun to my head I would obviously lean short….It doesn’t make any sense to me that old tech (HPQ, MSFT CSCO)  is blowing up and DELL the also ran of also ran is trading near 52 week highs.

About the only thing that looks that interesting to me would be an out of the money put spread.  I don’t have high conviction on the direction but as stated above wouldn’t buy the stock here so I want to look to low premium bet for a pull back to support level around $14.

-Also as many of you know I am fairly bearish here and want to find ways to express that view without pressing very oversold names…..


-Buy June 15 put for .35 and

-Sell June 14 Put at .15

Break-Even On June Expiration:

Upside: stock btwn 15 and 14.80 lose up to .20, stock above 15 and lose all .20

Downside: stock btwn 14.80 and 14.00 make up to .80, below 14 and make all .80.

-Looking to June as if there is reason for the stock to sell off it will continue to go for a some time…..

*divide the current stock price of $16 by the May 16 straddle offered at about 1.12, that’s what you would need the stock to move to break even, given the fact that we are 3 days to expiration there is little time value left in the options.