WFR (M E M C Electronic Materials)

WFR is in the semiconductor equipment industry and they hae a great track record of sales and earnings growth. This summer the stock traded down and broke the 200 day average and scared a lot of people (I'm included in that group as I got burned shorting the stock). It quickly found support and has rallied back up to form a nice base. In essence, it shook out a lot of the weak holders paving the way for a more heathy run as long as the group and the overal market are healthy.

After breaking out of the base on strong volume, the stock pulled back during the holiday period to find support at the 50 day average. When it bounced off this level I was ready and put a 3% position on buying 6,000 shares at 41.20. It continued to trade higher and yesterday with a somewhat weak market it showed relative strength so I added another 2,000 shares at $42.34.

Today had me a bit concerned, though, because althought the stock moved quickly and positively, the volume didn't come in nearly as strong as I would expect for such a move. I am not ready to kick out the position for this red flag, but I decided to sell 30 calls out of the money (I got $2.10 for the Feb 45's) in order to hedge my exposure a bit until it becomes clear whether the stock will follow through in a healthy manner or not.

Jan 26, 2007

I had a nice gain (not a huge gain) built up in the position and began to feel a bit uncomfortable. The stock is having a rough time holding above $45.00 and the last 3 days it traded down it did so in strong volume. I felt caution was in order especially considering some distribution in the market and overly bullish sentiment so I hedged the rest of my position with Feb 40's ($3.50 in the money) which i sold for $4.60. Now as luck would have it (and no i really don't believe in luck), the company reported a good number last night and this morning it is indicated above 47.50 before the market opens. This gets me a little hacked off as I have sacrificed this opportunity by protecting my capital, but those are the sacrifices I am going to make from time to time to keep from taking big hits to my capital that are devastating to a long-term record.

Feb 16, 2007

With option expiration here today I thought I should update the post on this position. When the stock consolidated after its gap up, I bought in some of my Feb calls. I now have 13,000 shares but will lose 3,000 today as the feb 45's are assigned. The rest is half hedged with March 55's. These calls are just out of the money and still cary decent premium that will slowly decay over the next 28 days. I expect further strength out of the name but am a bit concerned with the overall market so I will hedge with calls if needed.