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Skullcandy, Inc. (SKUL) Message Board

  • rexobxip rexobxip Dec 18, 2012 11:04 PM Flag

    Is this stock broken?

    Up volume, down volume, good news, up market... doesn't matter. This stock seems broken, and dives at the end of every day. I no longer think fundamentals matter for this stock... and can't help but feel that management is oblivious or complicit. If SKUL meets estimates, the stock will go down... if it misses, it will plummet. I am giving this another month, but if nothing changes, I am out. There is a better use for my money. Management tells shareholders that every time an insider sells. Management is doing shareholders a disservice.

    Anyone want to talk me down?

    Sentiment: Hold

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    • Good post...I agree...I think the only thing they can do is shock on earnings and then maybe that will force the squeeze...

    • coreylynnh@sbcglobal.net coreylynnh Dec 19, 2012 9:04 AM Flag

      So you are invested for the short term and a quick gain? Are you invested for a short squeeze? If so, then my recommendation is to get out. The only reason you should have money on this stock is if you believe in the long term growth and are willing to invest in it for years versus days or months. Any other reason and you will likely lose money.

      Of course fundamentals have not applied to this stock for a long time. Technicals do not matter either. This stock is likely manipulated by large investors and will be so until it attracts a lot of long term small investors or a good number of long term investors with a lot of money. And again, by long term I mean for years, not weeks or months. Too many investors in this stock are short term oriented and when they do not have their quick bang they bolt. It is surprising that people post on this board news the company puts out, such as the Navigator headsets, and expect a huge stock appreciation. SKUL is EXPECTED to grow. News of growth is not going to provide a huge boost, especially considering the manipulation of the stock.

      In summary, you should only own this stock if you believe the growth story will continue and are willing to invest in it for years. Any other reason and you will likely sell for a loss when you panic on a sudden stock drop and sell for less than you bought it for.

      • 1 Reply to coreylynnh
      • Corey is right, it is being manipulated by the big money; it is in a trading range after-all, which is where big money operates. When they are ready (fully positioned) they'll let you know with a sign of strength or weakness and pass the baton to the funds and specs. In the meantime you can buy at the low of the range and sell the top. Or, if you think this is an accumulation range, you can do what they do, sell at the top and at the bottom buy just a little more than what you sold.

        As far as "believing" goes, I think it takes a little more strategy than that. Like having a stop in place or selling out immediately if a sign of weakness (SOW) appears (wide directional price range with heavy volume). Contrary to Corey, I think you definitely want to be one of the first to panic on a SOW.

        To hang on for years just because you believe in a story is not smart, imo. The price leads fundamentals; someone always knows before they let the dumb money in on what is going on. The price action will let you know that the fundamentals have changed......not the other way around.

        They will likely wait for some news to use as a catalyst before they initiate an SOS or SOW.

    • coreylynnh@sbcglobal.net coreylynnh Dec 19, 2012 3:42 PM Flag

      Onepoint, you still don't know if SKUL is going up or down in the short term. So you are suggesting accumulate shares now. Again, there is a 50/50 chance this will go one way or the other because you cannot tell me where it is going. So if there is a SOW do you think that most of the people posting here will recoginize it soon enough to avoid a loss? Most of the posters here say things like "This short squeeze is coming" or "how come the stock didn't go up with these neat Navigator headset news". Remember Tom Payne, where is he? He had a silly following here on this message board and people asked daily "how high is this thing going", but he has dropped off the face of the Earth since the stock plunged. If the stock does rise most of these retail investors will again be asking "how high can this thing go" or "this is the short squeeze we have been waiting for". Then when the stock plunges again they hold until they are at a loss and then panic sell. The average retail investor will lose money on a stock like this if they are trading it for the short term. That is why the big money is in this stock because they can manipulate it for their profit at the expense of the dumbfounded retail investors. If you are opening a position on this stock now for a short term investment you are a slave to the manipulators.

      Perhaps you see this as a great risk/reward scenario. The stock could drop and at the SOW you get out therefore the downside is "limited". But if there is a SOS then you feel the upside is far greater. Perhaps that is your strategy. I have seen a lot of investors do well taking short term risks like these only to lose it all on one or a few bad ones. All I am saying is that a stock like this is dangerous for the average investor because they are watching all the wrong things and make a lot of bad decisions.

      • 1 Reply to coreylynnh
      • Yes, I agree with 90% of what you say. Great discussion, thanks.

        You're right, I can't argue that there is a 50/50 chance right now, except that supply (selling) has dried up. But since demand hasn't proved itself yet with an SOS, the direction it is still up in the air and this could be a re-distribution trading range. But this 50/50 condition is irrespective of strategy.

        So no matter how you look at it, it comes down to picking a bias, bullish, bearish, or sideways; the last case requiring an option strategy.

        As for my bullish bias strategy, buying at the low of the range with a stop just below, limits risk because if it falls out of this range on volume (SOW) then the next stop is $6.75. And the reason to sell most at the top of the range on a lack-of-demand bar, or short-on-thrust bar is to take most of the bread along with some profits off the table just in case my bias is wrong. When a sign of strength (SOS) appears then of course it's off to the races. It may take a long time, I dunno, but in the meantime there is range to be traded for profit and longer-term stock to be accumulated with low risk.

        The range is roughly 7.91 to 9.04 or 14%. Even if you can capture $8 to $8.75 that is 9% and nothing to sneeze at. If you could do that 4 times that's 36%. And then if a SOW shows up and you get stopped out at 9% loss (at the most) you're still ahead. Of course if a SOW comes in right after your first buy then you lose 9%, but that's all part of the game, a far cry better than holding it down to 6.75. If an SOS shows up, well you're already in and off to the races.

        You said:

        "Remember Tom Payne, where is he? He had a silly following here on this message board and people asked daily "how high is this thing going", but he has dropped off the face of the Earth since the stock plunged. If the stock does rise most of these retail investors will again be asking "how high can this thing go" or "this is the short squeeze we have been waiting for". Then when the stock plunges again they hold until they are at a loss and then panic sell. The average retail investor will lose money on a stock like this if they are trading it for the short term."

        I cannot argue with that. There were clear indicators back then that it was time to exit and a shorter outlook and a little trading knowledge would have been beneficial to them. So much for being average. The average intent on staying average will always get fleeced and should stay out of the market.

    • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 12:32 PM Flag

      "But this 50/50 condition is irrespective of strategy."

      I don't agree, it makes a significant difference of the strategy and your next statement ("So no matter how you look at it, it comes down to picking a bias, bullish, bearish, or sideways; the last case requiring an option strategy.") contradicts it. If you are bullish your strategy is different than if you are bearish or sideways. In any investment you need to weigh risk with reward. The bias greatly influences the risk part of this equation. Then a good investor will develop a contingency plan in case the assumed risk or reward did not come true (i.e. you mentioned putting a stop loss limit).

      We are very different investors. You are more short-term oriented than I am and side much more with technicals which I almost exclusively disregard. Not that one way or the other is right but just the outlook on things are very different. I can see how technicals are important to a shorter-term investor. I look for the long-term and therefore fundamentals are very important to me. Not just the snapshot today, but the past, present, and projected future. You mention the price will dictate the fundamentals. That may be partially true in a growth stock like SKUL and especially a heavily manipulated one like SKUL, but that is generally not true with stocks that have a greater amount of shareholders or much larger market caps. Stocks can be like chemistry or physics whereby assumptions hold true in certain ranges or situations but not all of them.

      • 4 Replies to coreylynnh
      • Well, what I was getting at, is when the market is NOT trending you need to have a bias to choose a strategy. We seem to agree.

        You misquoted/misinterpreted me. I did not say price "dictates" fundamentals. I said price action "tells" about upcoming changes in fundamentals; a distinctly different concept.

        Also, I am NOT just short term. Using technicals, or reading the tape, has nothing to do with time frame selection. I'm going to end this here, because you're not ready for me yet But think about this:

        If you had a $50 million account principally devoted to SKUL then how would trade it? You would have enough capital to manipulate price and so I don't think you would care about quarter to quarter or even year to year changes in fundamentals because since it would take you so long to get into and out of positions you would have to use your enormous capital to move the stock in accordance with YOUR plan and you would have the capital to do just that, damn the torpedoes. The reactions to fundamentals by the crowd would just be blips of noise in your world that you could easily manage.

        Now consider the home-gamer with a $50k SKUL-account. Does it make sense for him to base his trading decisions on fundamentals? Or should he follow the guy with the $50M account who 1) can't let fundamentals affect his plan and 2) has the capital to move the stock in the direction he wants? And if the answer is follow the money, then how would you do that?

        Price and volume.....reading the tape. Good luck but keep an open mind.

      • What I was trying to get at, is the necessity of choosing a bias in a non-trending market in order to select a strategy. We obviously agree on that.

        You misinterpreted me somewhat on price "dictating" fundamentals. No, not "dictates". What I said in effect was that price action will TELL about changes in [perceived] fundamentals before those changes become public information because someone [the big players] knows before the dumb money [that would be you and me] is allowed to know. This is not a new perspective, ie., traders-of-old Jesse Livermore, Richard Wyckoff.

        For example, look at any long-term chart and where you see volume off the top, the result is always the same. Specifically, take SKUL. One look at the price bar and volume bar of September 13th, 2012 is more important than any and all the fundamental analysis you could ever do. That action, off-the-top-with-volume, made it crystal clear that the TR beginning months before it was a distribution trading range; the big money was getting out and getting short. And it made it clear that "LONGER TERM" ,not short term, further decline was coming. On October 5th it tested the top of Sept 13th and failed on lower volume.....see ya don't wanna be ya. I tried to short that retest and for many days following, but could not get shares.....the big money had them all tied up. Did the big money know something the public did not? Probably, either that or detailed fundamentals just don't matter because what really matters is how the big money intends to make money; in which direction are they intending to take the price. In either case then, what good is detailed fundamental analysis for the retail investor? Nada. Doesn't it make more sense to just follow the money?

        I realize what I'm saying is hard for a fundamental purist to take in. It goes against all they've ever heard or thought about in regards to markets, but keep an open mind. There will be an SOS or an SOW and it will accompany some notable news item but not until the big money is fully positioned. If it comes back into the range it means the funds and specs didn't pick up the baton and run with it and the big money will work the range a while longer and try again on the next notable news item or they will call CNBC and make or buy some news. The point is, most everyone will think the news, the fundamentals, is what moved the stock. No, not even close. The news is just a catalyst, something for the funds and specs to grab on to and believe in. The big players have the capital resources to move SKUL anytime they want. They have the capital to keep it contained in the trading range. But they won't move it out and let the funds and specs mark it up or down until they are fully positioned. Fundamentals have very little to do with this process in the context of months or even years. Think about it. If you had $50 million to play with SKUL how would you make a profit? Would you follow the fundamentals, watch Jim Cramer every night, and basically follow the retail herd? NO WAY. You'd have to get in slowly and get out slowly over long periods of time so you don't adversely affect price. You'd have to buy when the crowd is selling and sell when they are buying. You'd have to have a "LONG TERM" plan and let nothing, including those irritating changes in fundamentals, get in the way of its final execution.

        Finally, we may be different in our investment styles but that does not mean I am "short-term" oriented. The strategy is to accumulate shares at the low of the range and then sell some off at the top of the range and make a profit and then buy even more on the next trip to the bottom of the range. How is that short term? SKUL is in a trading range therefore that and a bullish bias is what dictates my strategy until the price and volume tell me it is going to break up or down and start a mark-up or mark-down phase, a trending phase. I'm just following the money.

      • What I was trying to get at, is the necessity of choosing a bias in a non-trending market in order to select a strategy. We obviously agree on that.

        You misinterpreted me somewhat on price "dictating" fundamentals. No, not "dictates". What I said in effect was that price action will TELL about changes in [perceived] fundamentals before those changes become public information because someone [the big players] knows before the dumb money [that would be you and me] is allowed to know. This is not a new perspective, ie., traders-of-old Jesse Livermore, Richard Wyckoff.

        For example, look at any long-term chart and where you see volume off the top, the result is always the same. Specifically, take SKUL. One look at the price bar and volume bar of September 13th, 2012 is more important than any and all the fundamental analysis you could ever do. That action, off-the-top-with-volume, made it crystal clear that the TR beginning months before it was a distribution trading range; the big money was getting out and getting short. And it made it clear that "LONGER TERM" ,not short term, further decline was coming. On October 5th it tested the top of Sept 13th and failed on lower volume.....see ya don't wanna be ya. I tried to short that retest and for many days following, but could not get shares.....the big money had them all tied up. Did the big money know something the public did not? Probably, either that or detailed fundamentals just don't matter because what really matters is how the big money intends to make money; in which direction are they intending to take the price. In either case then, what good is detailed fundamental analysis for the retail investor? Nada. Doesn't it make more sense to just follow the money?

        I realize what I'm saying is hard for a fundamental purist to take in. It goes against all they've ever heard or thought about in regards to markets, but keep an open mind. There will be an SOS or an SOW and it will accompany some notable news item but not until the big money is fully positioned. If it comes back into the range it means the funds and specs didn't pick up the baton and run with it and the big money will work the range a while longer and try again on the next notable news item or they will call CNBC and buy some news. The point is, most everyone will think the news, the fundamentals, is what moved the stock. No, not even close. The news is just a catalyst, something for the funds and specs to grab on to and believe in. The big players have the capital resources to move SKUL anytime they want. They have the capital to keep it contained in the trading range. But they won't move it out and let the funds and specs mark it up or mark it down until they are fully positioned. Fundamentals have very little to do with this process in the context of months or even years. Think about it. If you had $50 million to play with SKUL how would you make a profit? Would you follow the fundamentals, watch Jim Cramer every night, and basically follow the retail herd. NO WAY. You'd have to get in slowly and get out slowly over long periods of time so you don't adversely affect price. You'd have to buy when the crowd is selling and sell when they are buying. You'd have to have a "LONG TERM" plan and let nothing, including those pesky irritating changes in fundamentals get in the way of its final execution.

        Finally, we may be different in our investment styles but that does not mean I am "short-term" oriented. The strategy is to accumulate shares at the low of the range and then sell some off at the top of the range and make a profit and then buy even more on the next trip to the bottom of the range. How is that short term? SKUL is in a trading range therefore that and a bullish bias is what dictates my strategy until the price and volume tell me it is going to break up or down and start a mark-up or mark-down phase, a trending phase. I'm just following the money.

      • coreylynnh,

        I like to get your input regarding options. I have almost 5000 shares in my account that I can sell calls or puts using my shares. I sold puts last time and I had to buy it back with some lost (double lost). I saw your note regarding selling calls and puts. What would you if you had these shares and want to sell options? Thanks.

    • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 11:29 PM Flag

      (Continued from last post. I have tried putting in my comment twice but failed. I am assuming it was too long).

      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.

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

      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.

    • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 11:31 PM Flag

      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.

    • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 11:32 PM Flag

      I replied but again it never showed up. Here goes again:

      Since I don't know the price you acquired your shares, what your outlook on SKUL is, or whether you have a better place for your money I will just tell you my story because I cannot give you a recommendation without more info.

      I have always sold puts on well-established large companies with a strong history of maintaining or increasing dividends. I also look at fundamentals to see if I feel the stock is undervalued and if so then I will sell puts on it. Great times to take action usually occur when there are pullbacks due to news, such as earnings misses, where investors overreact and send the stock down to undervalued territory. I make money thanks to these panicked sellers. The earnings miss is not a game-changer, the stock will eventually go back up and hopefully I can sell a put that expires worthless. If the stock depreciates and I am put on the stock I am prepared to hold it knowing I bought it at a great price and have dividends to fall back on until it appreciates. Hopefully in the meantime I can sell some calls for nice premiums as well. For instance, this last month I made ~ 3.4% return on the money I invested on MSFT and INTC weekly puts. The premiums were generally 0.5-1.0%. I was actually put on each once during the past month but turned around and sold a weekly call for the same strike price as the put and received premiums of 0.5-1.0% as well. Both times the stock was called away after that week. I will have INTC 20 and 20.5 puts and MSFT 26.5 puts expiring tomorrow likely OTM which is great. A short (about 90-100 pages) and simple book which explains this strategy is "Beating Wall Street 1% at a Time"by KJ Finn which I bought for $9.99 on my amazon kindle. I recommend reading it.

      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.

    • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 11:36 PM Flag

      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.

    • coreylynnh@sbcglobal.net coreylynnh Dec 20, 2012 11:39 PM Flag

      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.

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