June Picks

Hello, campers! Captain Capitalism here, a bit delayed by the weekend's festivities, but ready to serve the investing public.

First, this month's pick. Silicon Storage Technology, Inc. (SSTI) makes a variety of flash memory devices for consumer products, networking and wireless communications. Currently going for $10.01 per share, the July $10 options are paying a $0.75 premium, a return of 7.4% over four weeks, or an annualized return of 96.1%. The upside is that flash memory will be a superior storage technology for some time to come. The down side is that the market is increasingly treating these companies as suppliers of commodities, not innovation, and prices could fall to reflect current earnings instead of future applications.

A second, alternative pick is Ariad Pharmaceuticals, Inc. (ARIA). A $7.31 stock, its July $7.50 options are paying a $0.45 premium for a return of 6.2% over four weeks, or 80% annualized. Like several previous picks, it has several promising drugs in development with oncological applications, but it has negative cash flow and FDA trials could show the product is worthless.

Last month, I did not publish any picks, but I did make a few for myself. In keeping with full disclosure, here's how they did. Dendreon Corporation (DNDN) cost $10.29 and paid a $1.25 premium for the $10 June options. Dendreon currently goes for $11.11 per share. So, if you bought it then and sold it now, your return would be 8%, whereas if you bought it then and sold the option, your return would be 9.3%.

The other pick I am still kicking myself over. Although on my list of possibles, I did not buy it, damn, damn, damn. Cyberonics, Inc. (CYBX) went for $19.69 and paid $2.60 for the $20 June options. Cyberonics currently goes for $35.29 per share. Therefore, if you bought it then and sold it now, your return would be 79.2%, while buying it then and selling the option would have returned 14.8%. And if you did like me - nothing - you got nothing in return. The lesson of the story is that there is opportunity to be had, but if you do not risk, you cannot win.