Dykstra: Comcast Redux

Comcast (CMCSA Quote) shares dropped Friday with the market correction, closing at $40.82. The stock, which I suggested an in-the-money call trade on last week, has fallen back into its trading range from November before the recent breakout: $39.13 to $41.20.

In its earnings report on Feb. 1 the company reported that quarterly revenue rose 23% to $7.03 billion, with the biggest subscriber growth period in the company's history. Comcast is a pure play on what's known as the "triple play" in bundled services: cable, broadband and digital voice, all in one package.

On that conference call, CEO Brian Roberts said Comcast had an opportunity to grow faster in 2007, supported by investment, and he went on to forecast revenue growth of at least 11% in 2007, which was in line with market expectations, but its estimate of $5.7 billion in capital expenditure was above the average analyst forecast of $4.8 billion, according to Reuters estimates.

The company said most of the spending will be to accelerate the introduction of new products like high-definition video, and to boost its relatively new business of selling services to small and medium companies.

The company is the country's largest provider of cable services, and is expanding its cable operations to deliver digital services to provide faster Internet and IP enabled phone service, as well as providing new, innovative programming content.

While a short-term drag, expanding the triple play package with new content should help keep this company in a longer-term up trend.

So how do I handle the trade from here?

I look to the charts to adjust my in-the-money call strategies. Comcast broke to a new low for the year when the Jan. 3 low of $41.84 failed to hold, and when you observe the chart, the next key chart support is the Nov. 28 low of $39.16.

Wall Street loves Comcast, as coverage by 20 analysts show a median price target of $49.50. Before the stock rallied to $45.27 Jan. 18, it traded between $39.16 and $41.20, so there is a high probability that the stock will rebound to $41.20, which I will use in my strategy adjustment.

I am adding to my position in the July $35 (CCQGG) calls, buying 10 more July 35s at a limit price of $7. This will give me control of 2,000 shares all the way until the third Friday of July, July 20, with the average price now coming in at $7.80. In setting up for the exit, adjust the GTC (good till cancel) sell order down to 1 point higher than the cost, which is this case would be $8.80.