Options Backdating Investigation:
F5 Networks’ (FFIV) shares have experienced a good deal of volatility since late May when it was disclosed that the company was being investigated by the U.S. Department of Justice and the SEC regarding alleged stock option backdating. F5’s shares reached a 52-week low of $40.55 a share in July as the news sank in with investors.
An audio podcast of this article is available at: http://www.poweropt.com/podcasts/2006_12_21_F5.mp3.
As a result of the investigation, F5 restated its financial statements for fiscal years 1999 through the first half of fiscal 2006. The restatement caused a $23.5 million decrease in its stated earnings. The most important aspects of the company’s management, it appears, will not be affected by the investigation.
The stock options at issue for backdating are not the same stock options as publicly traded on the exchanges. Stock options which can be backdated are company private stock options made available to some company executives and employees and are not traded on public exchanges.
Analysts’ Pick
Jim Cramer said on his television show recently that F5 competitor Akamai (AKAM) has been “unstoppable” with its dominance in the streaming video business. Akamai’s current P/E is 63, and Cramer thinks the stock has little more to gain. Cramer noted F5 is a similar business with a current P/E of just 26. “It’s time to jump off the Akamai horse,” Cramer said, and buy F5.
Bank of America’s (BAC) Tim Long, a noted analyst, gave F5 a $90 price target. He speculates that as the market for voice over IP and streaming video grow, F5 will benefit.
In a recent memo to investors, Long wrote, “We believe these trends are likely to intensify over the next three to five years, driving secular demand for F5’s content switching, WAN (wide-area network) optimization, and security products, which improve the performance, availability and security of IP applications, while reducing the amount of traffic traversing the network.”
F5 also has strong relationships with powerhouses like Microsoft (MSFT) and Oracle (ORCL). Many of F5’s competitors do not have similar backing.
Earnings Report:
F5 will hold its fiscal year 2007 first quarter earnings conference call on 24 January. Earnings will come out after January options expire on January 20th.
Company Profile:
F5 Networks, Inc., engages in the development and sale of networking products to help customers manage application traffic on their Internet-based networks. Its products improve the performance, availability, and security of applications running on Internet-based networks. The company primarily serves telecommunications, financial services, technology, manufacturing, transportation, and government sectors. F5 Networks was founded in 1996 and is headquartered in Seattle, Washington.
Competitors:
Competitors for FFIV include: Cisco Systems, Inc. (CSCO), Foundry Networks, Inc. (FDRY), Nortel Networks Corp. (NT), Radware Ltd. (RDWR), and Riverbed Tech. Inc. (RVBD).
Potential Trade:
The following covered calls stock options trade scenarios were discovered using PowerOptions’ powerful web based search tools. PowerOptions quickly provides the data needed to make clear and informed decisions.
| Covered Call F5 Networks Inc. (FFIV) $73.77 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Expiration/Strike | Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FLKAN | 07 JAN 70.00 | $5.40 | 7.30% | 2.40% | 2.40% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FLKAO | 07 JAN 75.00 | $2.55 | 3.50% | 3.60% | 5.30% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The first trade is an in-the-money [ITM] covered call providing a sound +7.3% downside protection, and has a potential profit of +2.4% in only 30 days.
The second trade is an out-of-the-money [OTM] covered call providing a respectable +3.5% downside protection. The potential profit on this trade is +3.6%, even if the stock remains unchanged, rising to +5.3% if the stock price goes over $75.00; the strike price of the FLKAO call option.
The ITM/OTM trade-off for F5’s return versus downside protection illustrates the beauty of covered calls stock options investing, as it allows investors to tailor their positions according to their own individual risk/reward profile.
For more information about how to identify and research great option trades, visit the PowerOptions website. PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades and you will find the data you need to make quick, clear, and informed decisions. With PowerOptions tools, you can trade knowing you have found the best investment for your risk/reward profile. PowerOptions provides a toll-free number (1-877-992-7971) for customer support (PowerOptions’s customer support is second to none in the industry) for answering customer questions.
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[tags]U.S. Department of Justice, SEC, Jim Cramer, Seattle, Washington, AKAM, Akamai Tech. Inc., BAC, BankAmerica Corp., CSCO, Cisco Systems Inc., FDRY, Foundry Networks Inc., FFIV, F5 Networks Inc., MSFT, Microsoft Corp., NT, Nortel Networks Corp., ORCL, Oracle Corp., RDWR, Radware Ltd., RVBD, Riverbed Tech. Inc., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]