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Market Shadows: Group of writers and investors: Paul Price, Lee Adler, and Ilene.
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  • DARK HORSE HEDGE – Move on FRX, Buy/Write RDWR 6 comments
    Nov 11, 2010 6:17 PM | about stocks: FRX, RDWR
    DARK HORSE HEDGE – Move on FRX, Buy/Write RDWR
    Camargue, France

    By Scott Brown at Sabrient & Ilene at Phil’s Stock World

    Told you that forever was a word, I couldn't say
    I don't know 'bout tomorrow 'cause I'm livin' for today
    You're every inch a lady and you'll always have my love
    You listen, you can hear, her voice is callin' from above

    Move on, that's what she told me
    Move on, keep on movin' –
    Paul Stanley

    First and foremost, Happy Veteran’s Day and belated Happy Anniversary to the Marines (yesterday).  No words can express the gratitude Americans feel for all Veteran’s before us, now and to come.

    In lighter news, Forest Laboratories (FRX) has been in the Virtual Dark Horse Hedge portfolio since July 26, 2010 when we purchased a 7.5% position at $28.21 and sold a November $29 call August 17, 2010 for $1.35.  FRX is currently trading at $32.76 so by closing the now premium-less $29 call for $3.76 and selling FRX we can take the profit, albeit small, and move on.  In other cases we may have recommended rolling the call forward to another month and continuing to earn time premium but following Pharmboy's article, Looking at the Trees in Forest Laboratories, and other miscellaneous events, we feel we can replace FRX in the virtual Dark Horse Hedge portfolio with a company that can appreciate more. 

    BUY TO COVER, FRX Nov $29 call, at the market, Thursday, November 11, 2010

    SELL Forest Laboratories (FRX), at the market, Thursday, November 11, 2010

    Radware, Ltd. (RDWR) is our new interest and we are replacing the now departed FRX with it. Radware develops, manufactures and markets integrated networking solutions that allow its enterprise and carrier customers to deliver mission critical applications between data centers and remote locations, over all critical points in their networks. Radware solutions include Application Delivery and Network Security solutions. (See Sabrient's RDWR report.)

    The following text is quoted from a soon-to-be published article by David Brown on Sabrient's Top-10 Earnings Busting stocks. With David's permission, we have scooped in to preview an advance copy and we're taking off with one of his top 10 choices.

    IT managers are abandoning their physical servers and going to virtual data centers where resources are shared on virtual machines . . . and PC-based software is morphing into cloud computing, where the software and data are provided on demand from a centralized source, much like an electrical grid.  

    The need for security in these situations is front and center, and meeting that need is Radware, Ltd.  Another company for the 21st century, RDWR is a business-to-business provider of systems that help deliver a company’s mission-critical applications between data centers and remote locations.

    Why RDWR is an Earnings Buster:  Radware is a growing earnings monster. This year, it is up an amazing 246%.  It is projected to grow another 32% next year and an almost unbelievable 103% per year over the next 5 years.  While that seems fairly incredible, the company has grown at a rate of more than 26% a year over the past 5 years.  With these earnings, the current P/E of 41 is a tad high, but in light of its projected growth, its projected P/E is a very reasonable 27.3, and it has a truly outstanding CGR at 3.8.  RDWR is rated a Strong Buy by Sabrient

    We are acquiring this “Earnings Buster” in the virtual DHH portfolio using Phil's Buy/Write strategy which reduces our cost basis from $33.11 (current price) to $24.71, a whopping 25% discount.  In keeping with our approximately 7.5% allocation per position, our virtual porfolio will add 100 shares of RDWR (half position, because we are selling 1 put and our obligation to buy another 100 shares of RDWR constitutes the second half of the position).  Today, Thursday, Nov 11, 2010, our portfolio will do the following:

    Buy 100 shares of Radware Ltd (RDWR), at the market (approx. $33.11)

    Sell 1 RDWR Mar 2011 $35 call (RDWR110319C00035000) at the market (approx. $3.30)

    Sell 1 RDWR Mar 2011 $35 put (RDWR110319P00035000) at the market (approx. $5.10)

    We are always monitoring our Long and Short tilt and virtual positions... because when it comes to stocks and options, forever is a word we never say.  


    Disclosure: none
    Stocks: FRX, RDWR
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Comments (6)
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  • Love the song and the stock pick. RDWR has explosive growth potential and great premiums in options. Not giving my age away but rocked to this song often in my 30's.
    11 Nov 2010, 06:23 PM Reply Like
  • Makes me wanna sing the Lionel Richie song....."Oh what a feeling" when I am making bacon in the market........You should replace Cramer on CNBC because a) your better looking and b) your picks actually work.
    11 Nov 2010, 06:26 PM Reply Like
  • Author’s reply » That would make you how old? :-) I somehow missed this song, but not Scott, a big KISS fan.
    11 Nov 2010, 06:28 PM Reply Like
  • Author’s reply » Thanks CF, we're just trying to make reasonable choices and don't have the power to move stocks, with Cramer it's more of a game with momentum traders trying to jump in and out (and who knows what interests are being catered to), at least it used to be that way, I haven't been paying attention to him for years. Is it still the same?
    11 Nov 2010, 06:41 PM Reply Like
  • Cramer still throws his books around and blows all of his horns on the air but his ability to move stocks in the direction he claims has turned into a flash trade and ultimately they crash and burn on the human who can't execute a buy and sell in under a second. The only smart thing I have heard him say (and forgive me for admitting I watch occassionally) is that GMCR is a sell, sell, sell (which has me afraid because I agree). Keep up the great work. You are the Dark Horse for sure.
    17 Nov 2010, 10:13 AM Reply Like
  • Author’s reply » Thank you CR. When I was paying more attention to Cramer, he could move a stock for a quick trade by buying it in his publicized portfolio, sending out the email to subscribers, and then having the whole thing get reported on Briefing.com -- by that time, the stock would be up of course. Then I knew a couple of traders who would try shorting his MadMoney recommendations after hours, if the stock flew up too far (whatever that was), which seemed awfully risky.
    17 Nov 2010, 09:23 PM Reply Like
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