Lehman Brothers is recommending investors sell puts on stocks they would like to acquire but which they believe are currently overvalued. Paul Lieberman, v.p. of equity derivatives and quantitative research in New York, said investors should sell out-of-the-money puts to earn premium and will be exercised on the options if the price of the underlying falls to more realistic levels.
Lieberman said Dell Computer, Circuit City and Biogen Inc. would all be good targets for this strategy. But he added it can be applied to any stock in the Standard & Poor's 500 rated 'market perform' or better by Lehman, which has a target price below its current price. He said, "Six-month puts would be a good place to start, but it really depends on the view of the investor." The trade can be put on for any notional size.