Monday, December 11, 2006

Just looking... Thanks (trading)

Garmin LTD (GRMN) still pops up on my radar every few days. I had some Oct $47.50s covered calls get called away and still keep an eye on it. Today Soleil upgraded them from Hold to Buy. The company is solid, makes cool stuff that more and more people seem to think is a necessity. Their products are everywhere from airplanes to people’s pockets. The problem, and this has happen more than I care to think about, is lack of available funds right this minute. My whole trading account and margin too is tied to CROX and SNDK.

But let us pretend for a minute that I have room for another stock. Because the other two are taking longer to work out than planed I would see GRMN as a short term play. (Give me my money and let me go back to worrying about SNDK.) Covered calls would be my vehicle of choice for this play. Here’s one scenario: Close today was $50.25. A buy at that price and writing Jan $52.50 covered calls for about $1.60. I would fully expect (and hoping) to get called out come January. $2.25 price appreciation plus $1.60 premium is $3.85. That is around a 7.6% return for less than 40 days, not counting margin interest and commissions. If I didn’t get called it would still give me a shade over 3%. The 3% is enough to cover the margin interest and I would still be holding a stock that I like.

Ideally I would like GRMN at a price south of $50 and would be ready to wait a few days for that chance. This stock seems to rock up and down. I’m pretty sure I would be forgoing some upside by letting the stock go at $52.50 but for a quick short term play I’ll take 7.6% for 40 days. Thoughts and ideas welcomed.

This is just me thinking out loud. Please do your own research and take responsibility for the good and bad things that happen in your life.

More later.

1 comment:

Grant said...

Nice analysis. I like Garmin through the holiday season, but I think the competition is starting to weigh in on margins. I'm not sure how long this kind of growth can continue.