Call Options Or Put Options On NetApp (NTAP)?

| February 6, 2013 | 0 Comments

NTAP OptionsNetApp (NTAP) is a leading vendor of innovative storage and data management solutions.  They help organizations around the world store, manage, protect, and retain their data.

NTAP currently trades for $36.11 per share.  The shares have soared 37% from the November low of $26.26.  However, the shares are 22% below the 52-week high of $46.80.      

Is this an opportunity to buy call options on NTAP as they expand their partnership with CSCO?  Or should you buy put options on NTAP before the buzz about an IBM buyout wears off? 

The bulls make a convincing argument…

Last quarter, NTAP rolled out the latest version for their #1 storage operating system, Data ONTAP.  It provides the foundation for an agile data infrastructure that customers need to thrive in today’s economy.

They also unveiled a host of new products, technologies, and programs.  They set the stage for NTAP to take market share in the data center business.  And it will also help customers of all sizes capitalize on data growth to fuel their success.  

Additionally, they rolled out updated products to help enterprises and midsized business consolidate operations into a shared storage platform.  The new products improve performance by up to 80% and increase storage capacity by up to 100%.

In other words, NTAPs new product allows the customers to double storage utilization, cut storage spending in half, and boost productivity.

Simply put, this is a giant leap forward in data management.  It’s allowed NTAP to lock up lucrative contracts with tech heavyweights like Cisco (CSCO) and Microsoft (MSFT).

There’s no doubt about it, the giant leap forward in the performance of data storage will lead to an increase in investment in this type of technology over the next year.  And that should fuel strong earnings growth and a higher stock price.

But the bears have a compelling case as well… 

The recent 37% rebound in NTAP’s stock price is impressive.  But at this point, NTAP is setup for a fall.

Here’s the thing… based on the current revenue and earnings growth estimates, NTAP is richly valued at 16x next year’s earnings and PEG of 2.54.

In fact, the only reason NTAP has come so far so fast is because of speculation they could be a takeover target for IBM.  As you know, any time there’s buzz about a big takeover in tech, the stock that’s been targeted pops up as traders position themselves for a quick gain.

More often than not, the takeover never happens.  And the stock of the takeover target falls back to where it was before the takeover buzz began.  In this case, NTAP could quickly find itself back at $32.00 per share.

If you think the bulls are right, take a look at buying the NTAP March 2013 $38.00 calls for around $1.10.

If you think the bears are right, take a look at buying the NTAP March 2013 $34 puts for around $1.10.

Good Investing,

Corey Williams

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Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.