Dell

[KevinK]

I am making a fundamental comment on this post on DELL in the technical section:

Quote from mlsignups:

If you like Dell and think it has bottomed the best play right now I believe is to SELL the puts.

You can bring in $1.20 for some Nov 35's - meaning if Dell has bottomed and the stock just stays where it is or goes up the $1.20 is in your pocket - and if you are wrong you'll end up owning Dell at $33.80, which is a pretty good price for Dell.

If you want some longer term upside you could sell Jan '07 $37.50 leaps and bring in $4.20 of cash now, hold it for 15 months and then either have it expire when Dell by that time is over 40 (pretty resasonable assumption) or, again, you'll own the stock at a net $33.30, which is also pretty good price.

I have been selling the 37.50's actually. Putting the stock at 33.30 means less than 18x forward earnings with ~20% growth next 5 years. When taking the cash off ($3.74) that brings that 33.30 to less than $30 Enterprise Value. I view this as undervalued. I recently sold 25 of these LEAPS and bought the Jan 07 37.5 calls for 3.40 with some of the capital.

I think this is an interesting long term bet for people who think DELL is a quality business that has been hit unfairly.