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Skullcandy, Inc. Message Board

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  • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 11:30 PM Flag

    Is this stock broken?

    SKUL is the second growth stock I have tried to use this strategy on because I am trying to diversify a bit. The bad part is that there are no dividends to fall back on. But the premiums are so juicy that I can lower my cost basis quite quickly. As I said earlier I sold the SKUL 11 put pre-earnings for a 5% premium, or 0.55/share when the stock was ~12.50. This lowered my cost basis to 10.45. I figured they would at least meet earnings expectations and the price would likely stay above 11 or probably no lower than 10 at which point I could sell a call for another great premium, or better yet the stock would stay above 11 and the put expire worthless for a 5% profit in one month. The risk/reward seemed very good. I was half right, unfortunately I would rather have been right about the price it went to. In hindsight I made a mistake with this stock. At the time I sold the 11 put there was a 1% premium on the 9 put and typically I look for 1% premiums. Why? Because 1% premiums will yield me a double-digit annualized return which is what I seek. I was too greedy. I should have sold the 9 put to really lower my initial cost basis OR waited for the earnings catalyst to pass and if the stock did fall due to panicked selling I could have sold a nice 6 or 7 put. In fact I could have increased my position by selling those 6 or 7 puts but I did not want to increase my exposure on SKUL, especially since I am still experimenting here. Had it been MSFT or INTC I would have likely increased my position. But I am not panicking because I still think there is a profit to be made. Meeting analyst expectations is not a game-changer in my opinion and therefore I am still bullish on this stock for the future. Its fundamentals are still really good compared to its industry. The P/E ratio, PEG ratio, P/B, P/S all scream undervalued although P/C is a worry. This lack of cash is not a great sign, but then again SKUL has no debt. I sold a Dec call for .20/share (1.8% premium) so my cost basis is currently 10.25. If I can sell another call for greater than .25 I can potentially sell subsequent calls at the 10 strike price but that could eat away profits due to the $1 drop in strike price. I will wait a week or two to see what the stock does and see if I can sell a Jan 11 call for .20 or more. If I can sell another 11 call and the stock appreciates above 11 then I make a very nice profit, somewhere around at least a 30% annualized return (I already have 6.8% from the put and call I already sold and after January this will be 3 months investing money in it). If the stock doesn't appreciate then I will take what call I can get and wait patiently. If the company continues to grow at such a good clip investors will eventually drive the stock back up to 11 or higher and likely within the next year. I will then take my profit when it hits 11 or above. The key is patience. If there is a game-changer I can always cut my losses and exit. They all cannot be winners. But I will be much better off than if I had bought the stock at 12.50 when I sold that initial put. Luckily I only have a small position on this stock because I am learning how, and if, my option strategy can be applied to growth stocks.

 
SKUL
3.27-0.02(-0.61%)May 4 4:00 PMEDT