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New Trade – 8×8 Inc. (EGHT) covered call

My MBI covered call trade was cleared this Saturday with a nice gain. This released some cash and I am looking for another opportunity to make some cash. I found 8×8 Inc. (EGHT) stock which seems to be a good candidate to deliver a profit.

The stock recently corrected and is considered undervalued based on PEG value of 0.4346, one of the lowest in the Communications Services industry, which is supported by a PE of 6.519 that is also among the lowest in the industry.

From 5 yr chart you can see nice growing graph with healthy corrections:

EGHT

Take a look at daily chart. You can clearly see the stock undergoing correction. At this moment the stock corrected below 50 day MA, but it still is well above 200 day MA. From the technical analysis perspective, this correction seems to me in line with the previous ones, so I can expect the stock to rebound and go higher.

EGHT daily

Analysts are positivie on the stock and recommend moderately buy. Earnings and revenue are expected to grow from 0.06 a share to 0.20 a share (300%) in the next quarter and by 40% annualy. If that happens, this should provide enough boost to the stock to go higher.

8×8, Inc., is a United States-based company, which provides telecommunication services and technology for Internet protocol (IP), telephony and video applications. The Company provides voice over Internet protocol (VoIP) and Video Telephone service that enables broadband Internet users to add digital voice and video communications services to their Internet connections. The Company also offers voice mail, caller ID, call forwarding, call waiting, 3-way calling, online account management and billing, international call blocking and caller ID blocking services.

Here are the trade details:

Bought 100 shares EGHT: $6.79
Strike: $7.50
Sold 1 Covered Call: $0.45
Total Purchase: $634.00
Commissions: $8.78
Total purchase: $642.78
   
Expected Option Assignment: $750.00
Option Assignment Fee: $19.00
Expected Proceeds: $731.00
   
Expected Net Gain: $88.22
Expected ROI: 13.72%

If my expectations are correct and the stock rises above 7.5 a share by the option expiration, the stock will be called away and I will realize the profit listed above. If it doesn’t end up above 7.5, I will continue selling covered calls as long as it will be called away. That should also increase the potetial return. If the stock however continues falling, I will apply a correcting measures by selling calls longer away and with lower strike to still end up with gain when called away – a similar approach to what I am currently doing with a DMD trade.

Happy Trading!





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