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New Portfolio Position: QLGC "Bear-Call" Spread Projected Gain = $250

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QLGC - QLogic $30.03

QLogic (NASDAQ:QLGC) engages in designing and developing storage networking infrastructure components sold to original equipment manufacturers, distributors, resellers, and system integrators. The company produces controller chips, management enclosure chips, host bus adapters, fabric switches, and management software that provide the connectivity infrastructure for storage network. Its products include SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Management Suite HBA, and Switch management software.

The lack of "premium" in options made this week's search for viable spreads a relatively unproductive endeavor. However, there were a few favorable candidates for traders with a bearish outlook and this position was near the top of our list. The recent technical indications for QLGC suggest a continued downward trend and with quarterly earnings not due until after the options expire, there appears to be little catalyst to change the character of the issue in the near-term. Traders who agree with that assessment should consider this position.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (speculative - bearish/credit spread):

BUY CALL JUL-35.00 QLC-GG OI=3803 ASK=$0.10
SELL CALL JUL-32.50 QLC-GZ OI=5021 BID=$0.30

INITIAL "NET-CREDIT" TARGET = $0.25-$0.30
POTENTIAL PROFIT (X 10 contracts @ $0.25) = $250
MARGIN REQUIREMENT (X 10 contracts) = $2250
RETURN ON INVESTMENT (max) = 11.1%
COST BASIS = $32.75

INITIAL EXIT STRATEGY:

Once the spread is open, traders should place a (contingent) order to close the short ($32.50) call options if the stock price moves above $30.25 on an intraday basis. A "net-debit" order of $0.70-$0.75 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.

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