Fallen Stars

EK @ $16.24 (Eastman Kodak) manufactures digital and film imaging systems for the photographic and graphic communications markets. We can't believe we are recommending this stock. It hasn't traded at these levels since 1965. Their trailing 12 month revenues are $10.3 billion, yet the stock trades with a market cap of only $4.68 billion. We realize they are in a dying industry, but they have made in-roads onto the internet with Kodak Gallery and other services. The company pays a 3.1% dividend and appears to have bounced off the $16 level a few times since January. Investors can park some money here, collect the dividend and hope are speculation of a takeover takes place soon. We have no idea who would want to buy Eastman Kodak, maybe an ambitious private equity firm will take them private. Google has entered into crazier businesses, maybe they want to add them to their stable. We have seen heavy upside call activity over the last two weeks and that is what has attracted our attention. Swing traders can enter here with a stop at $15. More aggressive traders can enter here with a stop below $16. We have accumulated the October $12.50 Calls at $4.10 today.

Options

EK JV @ $4.20 (Eastman Kodak October $12.50 Calls) are in the money by $3.74 and only charging us 0.46 cents in time value for five plus months of time. A bounce to $20, which it has done twice already this year will give us a return of at least 80% and a takeover at $25 will yield us 200%. We want to point out that the action has taken place in the June and July $17.50 Calls at 0.50 and 0.65 cents a contract. We added some of these too, but feel these October $12.50 Calls offer a little more safety and time. If you like rolling the dice, add some of the July $17.50 Calls at 0.65 cents to your account. It is basically a lottery ticket on a takeover, so adjust the size of your trade accordingly. If it doesn't pan out, you lose 0.65 cents, if it does, you earn a 1,000% return or more, depending on price.

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