A big part of my job as managing editor of StreetAuthority
involves talking with our premium newsletter experts to get a
sense of what they like in the market, where they think it's
headed and how they plan to help their followers profit.
That means I get paid to hear from some of the top investing
minds in the country on a regular basis. What could be
I want to share some of that wisdom. I'm featuring insights
and top picks from each of our experts over the next couple of
weeks as a way of saying thanks for being a StreetAuthority.com
Today's pick comes courtesy of Amber Hestla.
As a former U.S. military intelligence analyst, Amber Hestla
learned how to analyze data to predict outcomes. These days she
applies those skills to financial markets for
ProfitableTrading.com, a StreetAuthority sister site. Amber's
specialty is generating income using options strategies that
minimize risk. In her advisory, Income Trader, Amber uses a
step-by-step approach to guide readers through the options market
in search of the best income plays each week.
So far, so good: Every trade that Amber has closed in Income
Trader since the first issue in early February has been a winner
-- that's one winning income trade a week since Feb. 6.
Here's more from Amber:
A Company Whose Coffers are Benefiting from Two Internet
There are two undisputed Internet megatrends -- growing worldwide
usage and the need for tighter security.
F5 Networks (Nasdaq: FFIV)
benefits from both.
The company's flagship product, F5 BIG-IP 5000, is a
high-performance "switch" -- a device that manages data for large
networks. Customers include cell phone network operators such as
Verizon Communications (
. Major network software providers, including
Microsoft (Nasdaq: MSFT)
also utilize F5's wares.
This equipment acts as a gateway between users and the data
servers, while maintaining security.
As a way to visualize these services, think about connecting
Netflix (Nasdaq: NFLX)
. You request a movie, and the switch decides which of the
Netflix's servers should deliver that movie to you. The switch is
responsible for finding a server not being fully utilized to send
your request so that it can be processed quickly.
It also defends against so-called distributed
denial-of-service (DDoS) attacks, which try to overwhelm a
company's servers and prevent legitimate users from accessing
service. A recent survey found that more than a third of large
companies experienced a disruptive attack in 2012. More than a
quarter of the attacks led to costs between $50,000 and $100,000
an hour, with the average attack lasting more than 30 hours.
Given the expense of a single DDoS attack, the $32,000 price
tag for a F5BIG-IP 5000 is a bargain.
Last week, F5 announced earnings for the most recent quarter
that beat analysts' expectations. Revenue was up 5% from a year
earlier, and, going forward, F5 said it expects earnings per
share to increase as much as 7% in the current quarter compared
with a year ago.
FFIV is also one of the best managed companies in its
industry, as you can see from this chart:
F5 is performing significantly better than average in each of
these measures and every other metric I checked. But instead of
buying shares outright, I recommend readers sell a put and get
paid to buy shares at a discount.
Specifically, I recommend selling FFIV Oct 70 Puts for around
65 cents. Selling these puts will generate immediate income of
about $65 per contract. Assuming FFIV trades for $70 or more on
Oct. 18, we keep the premium and make a profit of $65 on $1,400
(the "down payment" to initiate the trade). That's a 4.6% return
in 77 days. If we can repeat a similar trade every 77 days, we'd
earn a 22.8% return on our capital in 12 months.
If FFIV trades for less than $70 on Oct. 18, you'll keep the
$65 per contract, but you'll have to buy FFIV at $70 per share.
In this case, you'll own F5 at a cost basis of $69.35 (the $70
"strike" minus the 65-cent premium, which you keep), a 21.1%
discount to recent prices.
At $69.15, we'd own shares at about 13.6 times estimated 2014
earnings, and we'd be able to sell covered calls on the position
to generate additional income.
(Note: Options aren't for everyone. Please check with your
broker about any special capital and paperwork requirements that
you may need to fulfill.)
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.