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Red Hat - RHAT - close: 30.82 chg: +1.05 stop: 28.81

Company Description:
Red Hat, the world's leading open source and Linux provider, is headquartered in Raleigh, NC with satellite offices spanning the globe. The most trusted name in open source, CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight MagazineVendor Value study. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with middleware, applications and management solutions. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. (source: company press release or website)

Why We Like It:
We do not have a very bullish market bias at the moment but there is no denying RHAT's relative strength today. The stock has been consolidating under resistance at the $31.00 level with a multi-week pattern of higher lows as it bounces along technical support at the 100-dma. Shares look poised to breakout over resistance and we want to be ready to catch the breakout. We are going to suggest a trigger at $31.11, which would be a new five-year high. A breakout to a new high could spark some short covering. The latest data puts short interest at more than 10% of RHAT's 168-million share float. If triggered our target will be the $34.75-35.00 range.

Suggested Options:
We are suggesting the June calls. We prefer the $30's.

BUY CALL JUN 30.00 RCV-FF open interest=23352 current ask $2.20
BUY CALL JUN 35.00 RCV-FG open interest= 2902 current ask $0.40

Picked on May xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 06/27/06 (unconfirmed)
Average Daily Volume = 3.4 million
 

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