ATHR (Atheros Communications)

ATHR is a semiconductor name and while it is hard for me to fully grasp what the company does, I am impressed with the way they have ramped up sales and earnings over the last 5 quarters. The stock is trading at a relatively rich valuation for a mature company but it is reasonable for the type of growth trajectory they are experiencing now.

I purchased the stock in mid-November at $24.12 as it was breaking out of a handle after forming a base dating back to April 2006. The chart to the left is as of November 13, the day of my purchase. You can see that it broke to a new recovery high on above average volume. Right now the company is slated to report earnings late January or early February. Currently expectations are for sales of 86.2m and eps of 0.20 compared to 52.1m and 0.11 in Q4 2005.

After about 3 weeks of trading the stock did not follow through on the breakout. The action is not extremely concerning as negative days have been met with lower volume, but as a precaution, I sold January 22.5 calls against half of the position picking up 1.90 which still leaves me a small profit if the calls are assigned. So far the pullback has rested above the 200 day average which should offer some support providing the market remains firm.

Looking at my entry from a technical perspective, hindsight makes me wonder if it was the wisest purchase because the RS line didn't move to a new high before the stock broke out. However, it was an early stage base and is early in its trend of rapidly increasing earnings and sales figures so there are some cross currents i am looking at.

Jan 12, 2007

The company is rounding out the right side of its base and looking much more healthy. I am looking into next week and realizing that I will lose half of my position due to options being assigned and so I decided to add that stock back in that would be called away. The position is still fairly small and i am waiting for a definitive break above this consolidation in order to feel comfortable taking a larger position but for now I am intrigued enough to stay involved and watch carefully.

Jan 25, 2007

The stock was unable to break resistance at the $25 level last week and had a couple of high volume sell days after failing. The overall market has been moving higher but some of the technicals I look at (breadth, volume, dow theory) have thrown up some red flags. I have had a good month and am wanting to lower my exposure a bit so I sold calls against my full position getting $1.30 for the Feb 22.5 calls. I will re-evaluate the stock closer to expiration to see if I want to continue to be involved.

Jan 30, 2007

The company reported earnings and updated guidance. The report looks fairly positive with guidance up a bit for next year. Not much has changed and the stock is not moving much so I sit with my position hedged $1.50 in the money which is a pretty secure position for right now. I have no desire to add to the position presently but will watch it the next 2 weeks and decide whether to buy stock versus the calls that will likely be assigned.

Feb 16, 2007

Today is options expiration. I should mention that I decided a bit earlier to add another 6,000 shares to my position to replace those that will be assigned versus my calls. I am a bit torn because this 6,000 shares is really only half of what i should own to be a true position and yet I'm not comfortable holding too much of this stock until i see if it can really break free of this consolidation in strong volume. The overall market has me a bit unsure as well. Still, if the position is worth holding, I should stick to my rules of having 3% to 5% core positions and if it is not worth risking that much I should not hold it at all. I need to figure out soon whether to dump or add to it.

Feb 23, 2007

Yesterday the stock broke to a new recovery high and volume was above average but only by a small margin. The overall market is beginning to show chinks in its armor and I am concerned that this name could fall quickly in a declining market so I went ahead and sold out the remainder of my position for a nice gain. I expect to keep the exposure and volatility in my account a bit lower until the macro picture becomes a bit clearer.