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Computing an Options Play on Dell

If it's so low that a bounce is due soon, here are some possibilities


Dell (NASDAQ:DELL) is a global technology producer that designs, develops, manufactures, markets, sells and supports mobility and desktop products, servers and networking products. It offers storage solutions, and provides IT and business services as well as third-party software and peripheral products.

After Tuesday evening’s earnings miss and revenue shortfall, shares of Dell got annihilated on Wednesday. Shares closed at under $13, a levels not seen since September 2010. While growth has certainly gone by the wayside, the shares are reflecting undue pessimism. DELL has over $8 per share in cash, and still makes money, albeit at a stodgy pace. It did earn 42 cents per share last quarter, with expectations of slightly less than $2 per share over the next year.

With shares now trading under 13, and with $8 per share cash, this puts the ex-cash P/E at 2.5, a level that should attract some interest, especially given interest rates at 1.75% on 10-year Treasuries. Rumors of a potential dividend are always swirling around DELL, which also should provide a floor for the shares.

While not looking for a big pop in the shares, I do think DELL will trend higher over the next few months, as value investors gravitate toward the stock. I look for DELL to close near $14 by August expiration.

Based on DELL’s closing market price of $12.49 for May 23, and using a target price of $14 and a target date of August 17, 2012, option strategies to consider include buying an August call, buying a November call spread, selling a November put spread, or using another options strategy that best fits your trading style and risk-return objectives.

For the full details on this trade, visit, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to the details about these DELL options trading strategies by visiting TradeBuilder here.

As of this writing, Tim Biggam currently holds July call options in DELL.

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