# Nobel Prize Winners Help Us Find a \$125 Stock That Could be Worth \$500-Plus

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The PEG ratio is telling us that SI is a buy based on value. Even a more conservative estimate of the stock’s value, using a P/E ratio of 20, which is just below the seven-year average P/E ratio of SI, would indicate that SI is a buy, giving us a target of \$183.

RS, shown at the bottom of the chart, confirms this signal. SI has an RS rank of 80, indicating that it has outperformed 80% of all other stocks over the past six months.

An options pricing model points us to a specific put selling trade. The January 2014 \$115 put options are worth \$2.25, according to the model. They are currently trading with a bid of \$1.90 and an ask price of \$2.90. Selling the put above \$2.30 using a limit order would provide a way to benefit from a pullback in SI. Each put option covers 100 shares of stock.

If SI is below the \$115 strike price when the option expires in January, selling a put creates an obligation to buy 100 shares of the stock at \$115 per share. Since selling the put also provides immediate income, we can subtract that from our buy price. In this case, the cost of SI would be \$112.70, about 12.3 times next year’s estimated earnings.

If SI is above \$115 when the option expires, the profit on the trade is the \$230 received for selling the put option. Most brokers will require a margin deposit equal to about 20% of the option’s strike price when you sell a put, or \$2,300 (20% of \$115 x 100 shares) in this example. So the return on investment if the put expires worthless will be 10% in less than three months.

Understanding Noble Prize-winning ideas can help individual traders generate profits. SI is one example, and the stock market offers additional opportunities nearly every day.

— Sell SI Jan 2014 115 Puts for \$2.30 or more
— If SI is below \$115 when the put expires, you will buy the stock at a 9.5% discount to recent prices
— If SI is above \$115 when the put expires, you will have a profit of \$280 for a return on investment of 10% in three months

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