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Friday February 19, 2010
Bernie Schaeffer: Long & short in tech
by Bernie Schaeffer, editor The Options Advisor
In the tech sector, we recommend calls on software company Blue Coat Systems (NASDAQ: BCSI) while also recommend buying puts on Internet security firm McAffee (NYSE: MFE). 
The shares of software issue BCSI have been on fire during the past year, more than tripling atop support from their 10-week moving average. In fact, the equity has even outpaced the broader S&P500 Index (SPX) by 15% during the past 40 sessions. Nevertheless, there’s still plenty of pessimism levied against the stock on the Street. Most notably, short interest jumped by nearly 18% during the past month, and now accounts for 8% of BCSI’s total available float. However, from a contrarian standpoint, this bearish bias could be a boon for the security going forward. At the stock’s average daily trading volume, it would take about a week for all of these bearish bets to unwind. Should BCSI extend its quest for new highs along the unflagging support of its 10-week trendline, the shorts could get spooked into buying back their pessimistic positions, sparking a potential short-covering rally. RECOMMENDATION: Buy the July 25 call (IYUGE). Security technology provider MFE has been a broad-market laggard lately, underperforming the SPX by 13% during the past 60 trading sessions. Pressuring the stock lower have been its 10-week and 20-week moving averages, which haven’t been toppled on a weekly closing basis since mid-October 2009. Nevertheless, MFE still has plenty of fans on the Street, with 22 out of 26 analysts rating the equity a “buy” or better. In ddition, option traders continue to board the bullish bandwagon. During the past couple of weeks, speculators on the International Securities Exchange (ISE) have bought to open more than 10 times as many MFE calls as puts. What’s more, the equity’s 10-day call/put volume ratio of 10.26 stands only four percentage points shy of an annual optimistic acme. Continued weakness on the charts could trigger a mass exodus by the bulls, exacerbating MFE’s recent retreat into the red. RECOMMENDATION: Buy the June 45 put (MFERI). Learn more about this financial newsletter at Bernie Schaeffer's The Option Advisor. |
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We use a combination of fundamental, technical and sentiment indicators -- combined with a contrarian investment approach -- to select both our long and short trading ideas.