On rare occasions, Rick’s Picks will offer a 30-to-1 horse to subscribers who want to take a flyer. This time, it is Kodak that is the object of our greed. The stock has been trading erratically on the prospect of a favorable settlement of a patent case brought against Apple and Research in Motion. Winning the lawsuit would be a big score for Kodak, since licensing fees worth as much as a billion dollars are at stake.  Not bad for a company that almost went out of business because it failed to foresee the digital revolution in photography. Because the Rochester, NY firm still holds 11,000 patents, more than a thousand of them in digital imaging, its very survival hinges on aggressive licensing of intellectual property.

Although we have no strong feelings right now about EK shares, a longtime reader of ours who sometimes sends us hot tips thinks “EK to win” looks like a good bet. The tipster, Phil C., affirmed his enthusiasm yesterday in an e-mail that we duly conveyed to subscribers in the chat room. (Don’t subscribe? Click here for a free trial.) The breathless subject header read as follows: “Two-Minute Warning, Crunch Time. Ninth Inning”. As for the message itself, it was bursting with hopefulness, although understandably lacking in guarantees: “Whichever sport you choose, this is the crucial time to take maximum advantage of the opportunity in EK. Either a settlement gets announced at any moment, or the ITC rules after Thursday’s close in the US. I believe the chart says the stock is going higher. The catalyst of the decision/settlement only determines how fast and to what level the stock rises? As indicated previously, $5 is the short term minimum target. I now believe that in the intermediate term $6 is possible with an eventual longer term target of $8 possible. If you’rw not in with a decent size position, make it so.”

A Fat Covered Write

Okay, but tell us how your really feel, Phil. The recommendation evidently was not lost on Rick’s Picks subscribers, several of whom declared in the chat room that they’d bought the stock for a quick pop. One whom we actually talked with said he’d acquired 30,000 shares — not on the basis of Phil’s tout, but because he’d been following Kodak stock for a long time and mildly liked the company. We should note as well that the subscriber, rather than simply buying the 30,000 shares outright, sold 300 July 3.5 calls against them for around 35 cents apiece. They are trading with an implied volatility exceeding 120, which is a fat premium for a three-week wait. Covered-writing the calls against stock trading for 3.50 is equivalent to buying EK for 3.15 – which, if you’re neutral-to-mildly-bullish on Kodak is pretty tempting. Of course, if Kodak’s suit is rejected, it’s quite conceivable that despairing speculators could push the stock below $3 before traders know what has hit them. One more note – a purely technical one: Our proprietary Hidden Pivot Method of analysis suggests Kodak shares could reach $4.01 over the near term if they are able to close above 3.52 for two consecutive days.

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