Stock Option Investment Advice

Why is Simple Tech’s Stock Price so Complex?

Simple Tech’s stock price and its stock option volumes have been very erratic over the last several months. Simple Tech’s stock price took a significant hit in the middle of September and also around the first of November, but since the middle of December it’s stock price been on the upswing.

STEC Chart

Simple Tech is in the business of designing, developing, manufacturing and marketing custom memory products. The bulwark of its product offerings involves the Solid State Drive [SSD], memory using flash memory and dynamic memory. SSD’s are slowly replacing legacy Hard Disk Drive [HDD] technology.

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Simple Tech is in a new and growing market segment, but does it have enough pizzazz to weather the course? Simple Tech has some very large competitors including Micron Technology (MU), SanDisk (SNDK) and Samsung Electronics (private).

The root cause of Simple Tech’s volatile stock price is its small number of customers which make up the bulk of its revenue. Simple Tech’s ten largest customer account for 84% of its revenue and one customer accounts for 38% of its revenue. So if one of Simple Tech’s largest customers has a poor earnings report or reports bad news, Simple Tech’s stock price takes a hit. Conversely, if one of Simple Tech’s largest customers has good news, then its stock goes ballistic.

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In the long run, another company will probably acquire Simple Tech, it just doesn’t have the momentum to go the distance. But in the short term, Simple Tech makes for a great trading vehicle, with the right approach.

Simple Tech’s stock price and stock option volume went through the roof today. Significant call option and put option volume were especially heavy in January and February. A lot of this action is a result of analysts publishing upgrades for the company.

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A good stock options play for a company like Simple Tech is often a option collars investing position, a covered call investing position combined with a protective put option. Finding the right option collars investing position for a stock investment can be daunting, as there are literally thousands of alternatives. However, using PowerOptions search tool, it is pretty easy. For example, a search using PowerOptions search tool revealed the following three potential positions for Simple Tech:

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STEC PO Search

The first two positions use out-of-the-money put options and the third position uses an in-the-money put option. The third position requires a significantly larger capital investment as the price of the in-the-money put option is much larger than the price of the out-of-the-money put options.

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For this search, the out-of-the-money put option choice is less attractive as it has less potential return, requires a larger capital investment and offers no advantage as far as the maximum potential loss. This situation is not always the case, as the out-of-the-money put option can be an attractive investment.

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The first two positions have the standard trade-off of more return with more risk, or less return with less risk. In this case we’ll consider the second option collars investing choice with a %if assigned potential return of 8.3% and a %if unchanged return of 3.8%. This position has a maximum potential loss of 13.3%, which is nice, because STEC could easily drop more than 13% over the course of the timeframe for this investment which is 46 days. A potential for generating an 8.3% return in only 46 days is not too bad.

The profit and loss graph for this position for one contract is shown below:

STEC PO Search

To enter the collar position an investor would purchase the stocks in multiples of 100 shares for their trading portfolio and sell one call option and one put option contract for each 100 shares of stock purchased for their personal stock portfolio.

When investing with volatile companies, it is a good idea to bound the investment with a put option, just in case the company’s stock price takes a nose dive.

For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions’ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.

PowerOptions provides a free 14-day trial of its service. So join PowerOptions today, and you too can start reaping the benefits of the covered call investment strategy.

PowerOptions’ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.

[tags] Solid State Drive, SSD, Hard Disk Drive, HDD, Samsung Electronics, out-of-the-money, MU, Micron Technology Inc., SNDK, SanDisk Corp. [/tags]


  1. Marty

    Where is the max pain calculator on this site?

  2. Michael Chupka

    Marty, on PowerOptions we refer to the Max Pain calculator as the ‘Strike of Pain’ calculator. This tool can be accessed from the ‘Stock Detail’ page on PowerOptions. You can access the Stock Detail page two ways:

    1. Type a stock symbol into the main symbol field on the Home menu and click ‘Quotes’. This will link you to the Stock Detail Page. At the top you will see a link to the ‘Strike of Pain’ calculator.

    2. When researching a position on a Search screen, click the More Information Button, select ‘Research’ and then select ‘Stock Detail’.

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