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Once a darling of the tech world, Dell stock is up nearly 120% in just over a year. The computer hardware maker has recently gathered the attention of traders, but perhaps not for the right reasons. Dell is a prime example of a stock that has recently disconnected from its fundamentals as a result of the hype from AI. While there is little doubt that AI will likely form the next major boom in productivity and revenue growth for our global economy, those prospects for Dell are more limited. The reality is that analysts currently forecast Dell’s revenues to decline by roughly 11% and EPS by over 15%. That flies in the face of its valuation doubling over this past year. While 11 times forward earnings isn’t too concerning, a PC hardware business that is facing substantial industry slowdowns should trade at multiples well below the market. If we look at the chart, it has the hallmarks of a stock that has exhausted itself to the upside and at risk of a pullback with higher highs in price, with momentum that is slowing. Dell reports earnings in a week and I believe this is an opportunity to fade it going into earnings. With implied volatility quite elevated going into earnings, my preference is to be a seller of options and volatility. I’m looking out to the Dec 29 weekly options and selling the $75/82 call vertical for a $2.47 credit. This is how that is structured: Sell to Open Dec 29 $75 Call @ $3.85 Credit Buy to Open Dec 29 $82 Call @ $1.38 Debit Collecting a net credit of $247 per contract if Dell closes below $75 on expiration and risking $453 per contract if DELL closes above $82 at expiration. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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