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Darling you gotta let me know
Should I stay or should I go?
If you say that you are mine
I’ll be here till the end of time
So you gotta let me know
Should I stay or should I go?

Always tease, tease, tease
You’re happy when I’m on my knees
One day is fine, the next is black
So if you want me off your back
Well come on and let me know
Should I stay or should I go?

Clash

The markets have certainly given us cause to ponder the question of “should I stay or should I go?” over the past months and more recently with the “one day is fine, the next is black” volatility. As I discussed in the last article, in theory I believe with each new day we are at the “end of the world as we know it,” and without taking a political sides, all you need to do is watch the Tea Party/Republican debates to know that Washington should get “off our back(s).” I believe we will be fine as long as we remain smartly hedged.

Friday, September 16, 2011, is option expiration date for the month, and I suggested last Friday that we monitor Jabil Circuit (JBL), LDK Solar (LDK) and DepoMed (DEPO).

Jabil Circuit Inc. has all the components we look for in a long exposure stock, and it recently had upward revisions in earnings estimates which target a 10% five-year growth rate for a Forward P/E of 6.96. JBL closed at $17.64 on Thursday September 15, 2011, which makes the decision to roll our buy/write option forward to January much easier. The company announced today that they will announce fourth quarter and full year earnings September 27 at 4:30pm ET. The 12 analysts following JBL expect $.56 per share for the quarter and $2.28 for the year. Looking ahead to 2012 the same group of analysts is expecting $2.49 or roughly 10% growth. Despite UBS cutting the price target on Jabil from $23 to $21 on August 26, 2011, my price target remains unchanged, and so I recommend closing the September $20 put for $2.45 and allowing the September $20 call to expire. This will allow us to sell the January 20, 2012 $20 call for $1.35 and the January 20, 2012, $20 put for $3.80, earning an additional $5.15 in premium if JBL closes around $20/share in Jan 2012. We can always roll forward to March 2012 after analyzing the changes between now and January.

LDK Solar Co. hasn’t performed as well as I would like and has not participated in this four day “rally.” We have exposure to the stock already, so I don’t want to recommend accepting shares from the September $6 put sold on June 9, 2011. I recommend buy to close on the September $6 puts and sell to open the LDK Jan $5 puts for a net premium of $1.05. LDK second quarter results were driven down by lower solar prices, and not surprisingly, the company sees that turning around in the second half of 2011. Rolling the put position will provide us additional reduction to our cost basis through premiums while taking a wait and see attitude on further exposure to our long position.

DepoMed Inc. is our long exposure in the pharmaceutical industry. As I mentioned last week, we want to roll the options to December 16, 2011, for now, knowing we can always roll again to March 2012. The Sept $9 call will expire tomorrow, earning $1.15 in premium and lowering our cost basis to $7.57. It will cost approximately $2.65 to buy to close the Sept $9 put and we can sell the Dec $9 call and put for $3.60, lowering our cost basis by another $.95 and moving our expiration to December 16, 2011.

Last week we explored the idea that despite the feeling that we are “at the end of the world as we know it,” “we will be fine,” and with these option rolls, we have now answered the question of “should we stay or should we go?”

Recommendations:

Buy to Close JBL Sept $20 put (JBL110917P00020000) at the market Friday, September 16, 2011

Sell to Open JBL Jan $20 call (JBL120121C00020000) at the market Friday, September 16, 2011

Sell to Open Jan $20 put (JBL120121P00020000) at the market Friday, September 16, 2011

Buy to Close LDK Sept $6 put (LDK110917P00006000) at the market Friday, September 16, 2011

Sell to Open LDK Jan $5 put (LDK120121P00005000) at the market Friday, September 16, 2011

Buy to Close DEPO Sept $9 Put (DEPO110917P00009000) at the market Friday, September 16, 2011

Sell to Open DEPO Dec $9 Call (DEPO111217C00009000) at the market Friday, September 16, 2011

Sell to Open DEPO Dec $9 Put (DEPO111217P00009000) at the market Friday, September 16, 2011

Source: Should I Stay Or Should I Go With These Options?