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By Scott Brown

Listen red light, yellow light, green-a-light go
Crazy little woman in a one man show
Mirror queen, mannequin, rhythm of the love
Sweet dream, saccharine, loosen up, loosen up, a loosen up

You gotta tease a little, squeeze a little, tease a little more
Easy operator come-a-knocking on my door
Sometime, anytime, sugar me sweet
Little miss-a-innocent sugar me, yeah, yeah, give a little more

Take a bottle, shake it up
Break the bubble, break it up

Pour Some Sugar on Me - Def Leppard

With Fed Chairman Ben Bernanke's press conference behind us — which can best be summed up for investors as a "green-a-light go" – we need to answer the "Easy operator [who's ... ] knocking on my door."

Two stocks in particular, and for far different reasons, have caught my attention, and I believe that with using Phil Davis' Buy/Write Strategy they will indeed "pour some sugar on" our virtual portfolio.

Let's begin with MIPS Technology Inc. (NASDAQ:MIPS), which ran a "red light" today with their quarterly non-GAAP announcement of $.09 and guided the 4th quarter below street expectations on both revenue and earnings. This news gave shares of MIPS a 24% haircut in one day and sent prices to levels not available since September.

The good news is that we didn't have exposure to MIPS before today. The better news is that we can gain exposure to the mobile computing market (which I believe is a good thing) at a 15 – 20% discount even after the 24% clip today by using Phil Davis Buy/Write Strategy.

The main thing to know about MIPS is that they have contracts just now moving into the royalty revenue stage from MIPS-based tablet computers and smartphones which primarily run Google's Android software. This is a small-cap company which is going to "tease a little" and hit some bumps in the road, as it did today, but as CEO Sandeep Vij said "It's a marathon, not a sprint." We can enter a long position in MIPS and sell option premium while the racers are pacing themselves.

The second stock with a "green-a-light go" is Depomed Inc. (NASDAQ:DEPO), a specialty pharmaceutical company which develops and commercializes pharmaceutical products based on its proprietary oral drug delivery technologies in the United States. DEPO markets GLUMETZA for the treatment of type 2 diabetes in the United States and Canada, along with Proquin XR for the treatment of uncomplicated urinary tract infection in the United States.

As president of a quantitative research firm, I have often wondered how to "score" the intellectual property developed at pharmaceutical companies because that is the measure on which most are valued, rather than the earnings, analysts forecasts, corporate governance and other measures which are typically used to quantify companies' fundamental data.

DEPO is rated a BUY in Sabrient's ratings report, which caught my attention for the reasons mentioned above. After further, mostly qualitative, research (talking with experts in the field), I believe DEPO warrants exposure to the long side. The options market, as usual, provides us with an opportunity to enter DEPO at a 15 – 20% discount using Phil Davis' Buy/Write Strategy. In this case, the Sept $9 call ($1.15) and Sept $9 put ($1.30) allow us to "break it up" and "pour some sugar on" DEPO.

Recommendation:

MIPS

  • Buy (half the number of shares you wouldn't mind owning) MIPS, at the market, Thursday, April 28, 2011
  • Sell (1 contract for each 100 shares purchased) MIPS Oct $9 call (MIPS111022C00009000), April 28, 2011 (approx. $.80)
  • Sell (1 contract for each 100 shares purchased) MIPS Oct $9 put (MIPS111022P00009000), April 28, 2011 (appros. $1.60)

DEPO

  • Buy (half the number of shares you wouldn't mind owning) DEPO, at the market, Thursday, April 28, 2011
  • Sell (1 contract for each 100 shares purchased) DEPO Sept $9 call (DEPO110521C00009000), April 28, 2011 (approx. $1.15)
  • Sell (1 contract for each 100 shares purchased) DEPO Sept $9 put (DEPO110521P00009000), April 28, 2011 (appros. $1.30)
Source: 2 Stocks to Pour Some Sugar in Your Portfolio