How to Play EMC

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Oct. 31 (Bloomberg) -- Trading Advantage Senior Market Analyst Alan Knuckman discusses his options play for EMC on Bloomberg Television's "Market Makers." (Source: Bloomberg)

Time for "on the market." here is alix steel.

Today we are going to crack down on derivatives with options insights.

Emc reported third-quarter earnings that came in shy of its own estimates, leaving the stock five percent less expensive.

Alan must mend says this is the time to buy.

You are taking advantage of this onside move, but with the long- term strategy, what is the decision?

I want to look at the nasdaq.

It obviously led the way with the fine gentle crisis, and the stock emc had been participating, but this last year it is down five percent.

Looking at this, i am looking to see this play catch-up, and the stock has been trading between 182 and 27 over the last year with a very important support point.

Now it is a huge baseline of support here over the last couple of years.

That sounds like a technical reason to bid on emc.

Fundamentally, 8% of its revenue comes from the government, so it is exposed to shutdown issues.

Why do you think he will play that catch-up?

If you look at 2450, the halfway point of the high to low for the year, we are pressing on that a little now.

I am looking at long-term options play in anticipation of it getting above that breakout level.

If it gets to 27, you will see a $5 move.

A long-term option play, january of 2015, in the money call, a 20 -call.

That 20-call will cost about $5 right now.

The breakeven is $.80 higher with over a year and almost three months to go on this.

Your loss attentional looks bigger than your game potential, so why not buy the stock outright?

It is a stock substitution play.

If you buy the stock, you have to pay the share.

It is $420 in the money as it stands right now.

It is like being long from $20, putting up much less cash, and i have absolutely limits if something catastrophic happens.

What is your stop loss?

The stop loss is putting in on an option.

I put in half of what i pay because if it loses half its value, the markets are on its way or i am running out of time.

Those are two things running against me.

This option would gain over 130%. it is a better -- it is a lower risk lay with a better reward as the stock moves upward in the big picture.

How did you come up with the timeline of january 2015? the company has two talk a few years out.

I want to buy enough time to be right, and because volatility is low right now, the time component and the volatility component are very small, so you are able to get an intrinsic value very high.

And have a very low breakeven.

We don't have a ton of time left, but emc owns 20% -- 80% of e.m. wear.

This is something that i can petition for the long-term, using options as the vehicle because they offer better pay off and less risk.

I am looking at a big pitcher play so i do not have to walk -- to watch things day by day or week by week.

Big picture, a lot of longer, not a lot of risk.

This text has been automatically generated. It may not be 100% accurate.


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