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No. of Recommendations: 1
Cross-posted from another board


So I'm just casually wondering if STP is a buy at current prices ($8.54). Sure I know what they do, and how they make their money, but with this crazy market, is this just a dirt cheap price for the company, or are they in for rough times ahead? So I start looking at the options chains (because it's somehow part of my DNA, and I can't help it)... Yowwwwezzzzers!!!

At $8.54 I might just buy a hundred shares to play out one of the following options plays...

Currently at $8.54... buy the shares... the March calls with a strike of $10 are going for $2.50... yes ladies and gentlemen... that's 29% for a week shy of 4 months... divide .29 by .31 (.31 is 16 weeks till expiration divided by 52 weeks in the year to give percentage of the year left till expiration) gives you an annual return of just under 94%, then divide by 12 to give you an monthly return of 7.8%... and that's not the even the best part... O.K., maybe it is, but you also have to look at the fact that we've picked a strike price that is a full 17% higher then the current price... Sooooo, if you get called, you get to add in the 17% (which is an additional 4.6% monthly) for a gain of 12.4% PER MONTH. Not that

What's the downside you ask? Great question. You buy the shares, you sell the calls, and the stock tanks some more... you have to be happy with shares with a cost basis of just pennies over $6. Hmmmmm, that doesn't seem fair... let me run all the numbers again... interesting... it appears that implied volatility is off the charts.. currenlty at 180, but was recently above 240... the recent gains from the lows has tempered the volatility a bit... but looking at what the options chains are paying, it appears that folks aren't to pleased with the recent slight bounce as the options premiums are still off the charts...

Of course selling puts against STP would also be advisable if you want to own some shares. The March puts with a strike of $7.50 are selling for %2.85... sheesh... that would give you a 33% premium with a strike price that is over a buck lower then the current price... the stock would have to go below $4.65 for you to lose money... a 45% haircut to the current price... interesting...

So the question really is are they going to be a company a couple years from now? :P If you think the answer is yes, please post your thoughts.
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