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November 21, 2009
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Novell Inc. (NOVL)
February 19, 2009"Buy to open" the NOVL Jan 5 Calls (WNNAA) for 50 cents or less and "sell to open" the NOVL Jan 2.50 Puts (WNNMZ) for 25 cents or more for a net debit of 25 cents or less
Dear Fellow Options Traders,
Novell, Inc. (NOVL) is an infrastructure software company that offers software to integrate mixed technologies so they operate as one.
In the past, the company has struggled against Microsoft. Today, the company has a new management team that has been in place for about a year, $3 per share of cash, positive cash flow and no debt. The stock is currently trading at about $3.45.
Analyst estimates for this fiscal year and next are 26 cents and 30 cents respectively. That translates into a P/E multiple of less than two-times, if you account for the cash on the balance sheet.
Our background checks indicate that the company's solid financial condition shouldn't change materially during the next 6-12 months. Even if the company misses earnings estimates when it reports on Feb. 26, we do not believe this should do significant damage to the stock, given the already low valuation.
And we may not be the only people who recognize how silly the low valuation has become on this stock. Today, we are seeing buyers of the NOVL Jan 15 Calls (WNNAA) trade in size. We like the position of the stock, the price of the options and the duration of the options. We want to join with these smart options buyers.
We recommend that you buy to open the NOVL Jan 5 Calls (WNNAA) up to 50 cents.
For those of you who have margin accounts and would like to reduce the up-front capital commitment, we recommend using a spread order to simultaneously buy to open the NOVL Jan 5 Calls (WNNAA) and sell to open an equal number of the NOVL Jan 2.50 Puts (WNNMZ) for 25 cents or more to collect the premium.
Both legs of this trade are bullish and selling the puts reduces the total cost of establishing this position to just 25 cents.
Have a great day trading.
Nick Atkeson and Andrew Houghton
Editors
Options Trader
