Build A Safer Portfolio With Fortinet

There is no denying the impact that technology has had on our lives every day. In many ways technology has made life much easier. Through the years it has progressed to the point where we rely on in almost every facet of our lives.

Not only does the internet changed the way we connect and communicate with people in our lives, it has also changed the way we store all our data and sensitive and crucial information.

While the benefits of cloud computing and large data centers may be underestimated, there is also a dark side to store all our information online, and that is the ever-present threat from hackers and identity thieves constantly trying to gain access all our sensitive data.

Data theft has always been a danger, but has gained mainstream attention in recent years due to high-profile attacks on companies like Sony and Target. While it is not easy to cut in large companies and steal millions of SSNs, or data from credit card, it is far from impossible. This has been proven time and again, and is one reason why companies whose sole purpose is the protection of our information continue to grow in importance.

Fortinet is a California based company that provides network security solutions worldwide for corporations and governments. The stock has been moving force majeure in the last year, and analysts expect 28% earnings growth in 2016 is unlikely to be more upside to the stock forward. The growth potential is huge, and while I am optimistic about the future of the action, the current valuation is a concern.

Wall Street is so confident in the core business of the company, and its potential for future growth that has driven the stock at a P / E of 223, which is scary to say the least. With such high earnings growth expected, the high P / E may be somewhat excused, and there is a good chance that revenues will grow even more than expected as network security more crucial for companies and governments becomes .

Although I am optimistic about the industry, and believe companies like Fortinet have a bright future, I prefer to lower the cost basis of any new position in the stock, so I would go with a covered call position. Call decks offer many advantages for investors, but in the case of Fortinet, the biggest advantage is the lower cost base can be set to any shares purchased.

This works because when a covered call, you buy shares (usually in 100 lots per share), and then sell a call against their actions configured. The call sold effectively reduces your cost basis in the stock of the amount received from the sale of that call. At the same time, it will remove the emotion of your exit strategy due to its position automatically expire profitable if the stock closes above its strike sold at maturity. To illustrate the approach, let's look at a covered call can be configured in FTNT using current prices.

To configure the trade, you will buy FTNT stock for $ 33.50 per share (100 shares, or escalate as appropriate), while in the same contract of sale (100 shares by value) of the June 33 call FTNT at least $ 2.60 per share. Breakeven trade becomes the share price less the credit for the sale of the call option. In this case, it brings breakeven to $ 33.50 less $ 2.60 or $ 30.90 per share. In essence, it has lowered the cost of buying the stock of $ 33.50 to $ 30.90, easing some concerns about the current valuation of the share.

If FTNT is trading above $ 33 at expiration June (06/19/2015), will be assigned his position, and the market will exercise the option and buy your stock from you at $ 33. As a result, the profit on the trade becomes $ 33 less than its initial cost of $ 30.90, so you are left with a profit of $ 2.10 per share. Your profit on a stock position 100 becomes $ 210, which is a return of 6.8%. With the open position for 119 days, you have an annualized return of 20.8% (for comparison only).

The other possibility is that FTNT falls below $ 33, and the expiration of your option expires worthless and you are left holding the action. In this case, you are still better than it would if you simply bought the shares at today's price, since you have to $ 2.60 per share from the sale of that call.