Sponsored By:

Red Hat (RHT)

January 28, 2009

Dear Fellow Options Traders,

Red Hat Inc. (RHT) used to be red hot in the year 2000, when it traded for more than $150 per share. Today, it is trading around $15 per share.

The company continues to provide open source software solutions to the enterprise like Red Hat Enterprise Linux. Somehow, the company has managed to stay debt free and profitable during these difficult economic times. It is expected to earn 84 cents for the fiscal year ending February 2009. If you pull the $4 of cash out per share, the P/E is about 13-times.

We are seeing unusual options flow today in the RHT Feb 17.50 Calls. What is interesting about this heavy call buying is the company is not scheduled to report earnings until March 26. In other words, the news horizon looks quiet, which grabs our attention even further.

Given the options and expected news flow, we recommend you buy the RHT March 17.50 Calls (RHTCW) for 45 cents or less. Be sure to use limit orders with this trade to ensure you don't pay more than the 45-cent buy under price.

We prefer the March expiration, as it will lessen the impact of time decay in the near-term.

Have a great day trading.


Nick Atkeson and Andrew Houghton
Editors
Options Trader