A day after VMware posted an increase in fourth-quarter profits, “Fast Money” options trader Mike Khouw looked at an overwrite as a possible play.
“One of the things I would think about with VMware, when you take a look at the growth versus the stock’s multiple — this thing’s trading at more than 50 times earnings. It’s trading at probably 36 times forward earnings,” he said Tuesday. “It got a nice pop.”
The cloud-computing company said its profit rose 67 percent to $200.4 million, or 46 cents per share. It expected revenue to grow by 19 to 22 percent in 2012.
“I think one of the things you might take a look at doing here is a little bit of an overwrite,” Khouw said.
VMware shares closed up 7.7 percent at $92.66.
Khouw suggested selling March 95 calls.
“You can collect about $3.80 for those,” he said. “That’s got about a 4 percent yield-to-maturity on that, and you could still have about 6 ½ percent total upside if the stock does rally through that strike, and that’s only about 6 or 7 cents below the average analysts’ price target, although I do expect to see that rise.”Page 1 of 2 | Next Page