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Monday, December 22, 2008

Establish Sybase Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Sybase Inc (SY).

Sybase is a systems software company with strong products in both the enterprise storage and the mobile phone systems/messaging areas, both of which will offer strong future growth possibilities, and their offerings in mobile messaging are especially highly regarded. Yet, the valuation of Sybase continues to be surprisingly reasonable. For example, the current P/E ratio is only 13, while earnings are expected to grow in excess of 20% over the next 12 months. Other financial metrics are strong as well:
- Cash & Equivalents is very high at 28% of a $2 billion total market capitalization.
- Free Cash Flow as a percent of market cap is an attractive 9.3%
- Given the high cash and free cash flow levels, total debt is very reasonable at 23% of market cap.
- Price/Sales Ratio of 1.9 is relatively low compared with most other systems software companies
- Return-on-Equity is good at 21.7%

Sybase also demonstrates a commitment to shareholders with their very high corporate goverance ratings. Finally, 10-year CEO John Chen seems to be a very candid, enthusiastic, and visionary leader, and these attributes are especially valuable in the always rapidly-evolving information technology sector.

Established Sybase Inc (SY) Covered Calls for Jan09:
12/22/08 Bought 300 SY @ $23.36
12/22/08 Sold 3 SY Jan09 $25.00 Calls @ $.65

Annualized Return If Unchanged (ARIU): +39.0%
Annualized Return If Exercised (ARIE): +137.6%
Downside Breakeven Protection: 2.8%

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