Dell Stock Spiked After Earnings, But Is It Close to Fair Value? Shorting Puts and Calls Work Here

Dell Stock Spiked After Earnings, But Is It Close to Fair Value? Shorting Puts and Calls Work Here

Mark R. Hake, CFA

Sun, September 6, 2026 at 4:00 PM GMT+3 5 min read

• DELL +1.50%

Dell Technologies (DELL) stock spiked almost $100 this week after its Sept. 1 Q2 earnings release, following strong earnings and free cash flow (FCF) performance. But it's near my prior FCF-based price target ($525.71) from a month ago. Moreover, analysts' PTs are only slightly higher (+7.6%).

As a result, instead of buying DELL stock here, shorting out-of-the-money options may be a better play. That way, an investor can collect a premium while waiting to buy in (i.e., a short-put play) lower or sell at a higher price (a covered call play). This article will show how these work.

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DELL closed at $524.14 on Friday, Sept. 4, up +23.3% from its pre-earnings close on Sept. 1 of $425.00. In fact, it's been quite volatile, as seen in the Barchart chart below. In fact, its implied volatility (IV) is relatively high at 62.50%, according to Barchart.

Strong Earnings and Free Cash Flow

The single most important takeaway from Dell's Q2 earnings results is that its AI-optimized server sales rose 100% Y/Y to $16.4 billion, representing 34.9% of total sales. In fact, total server sales now comprise 57.3% of sales ($26.9 billion), with a Y/Y growth rate of 108%.

In other words, AI-related demand from data centers, hyperscalers, and related companies is pushing its revenue and cash flow significantly higher.

For example, analysts now project revenue this year (ending Jan. 31, 2027) will rise 70.5% to $193.53 billion (from $113.5 billion last year). Next year, they project a +14.6% revenue gain to $221.71 billion, but that could easily be too low, based on its surging quarterly AI-related server sales.

As a result, over the next 12 months, it's safe to expect at least $210.6 billion in sales. If DELL can continue to make at least a 5.7% FCF margin, as it has done over the last year (5.66% LTM FCF margin, according to Stock Analysis), FCF could reach $12 billion:

$210.6b x 5.7% FCF margin = $12 billion FCF over the next 12 months

That's well over the $8.55 billion it made in 2025, and implies a higher fair market value (FMV).

Fair Market Value and Price Targets

Let's assume the market will eventually give this higher FCF level at least a 3.33% FCF yield. In other words, if the company were to pay out 100% of its FCF in dividends, the dividend yield would be 3.33%.

That's also the same as a 30x FCF multiple (i.e., 1/0.0333 =30). So, its fair market value (FMV) is:

$12b FCF est x 30 = $360 billion FMV

That's +6.3% over its present market cap of $338.67 billion (based on Yahoo! Finance's calculation). So, my revised price target (PT) is 6.3% higher:

$524.14 x 1.063 = $557.16 PT

Yahoo! Finance's analyst survey shows an average PT of $564.46, and Barchart's survey PT is $575.92. So, DELL stock may be getting fairly close to its PTs, even with strong AI server demand.

(The only caveat is that if next year's revenue comes in stronger than expected, these PTs could rise significantly).

So, it might make sense to sell out-of-the-money puts and calls. That way, investors can collect income while waiting to see if PTs move higher.

Shorting OTM Puts and Calls

Look at the Oct. 9, 2026, expiry period. That's just over 30 days from now. The premiums are for 5% out-of-the-money puts and calls.

For example, the $550.00 call option contract has a $29.30 midpoint call premium. That provides a 5.59% covered call yield (i.e., $29.30/$524.14), for a strike price that's 4.9% higher.

Similarly, the $500.00 put option strike contract has a $26.88 midpoint premium. That means a short-put investor can collect a 5.376% one-month yield (i.e., $26.88/$500.00), for a strike price that is 4.61% below the Friday, Sept. 1 close.

However, the delta ratios for both of these are fairly high, implying a high probability of assignment. But that could be what an investor wants, especially if they want to sell or buy at or near today's price.

A less risky play is to short 10% OTM calls and puts. For example, the $580.00 call option has a midpoint premium of $20.85. That provides a 3.98% one-month covered call yield, for a 10.66% higher strike price.

Similarly, the $470.00 put option has a $16.03 midpoint premium, or a 3.41% short-put yield over the next month. That strike is 10.33% below today's price.

Moreover, the breakeven point (should DELL drop to $470 before the Oct. 9 expiry) is $470-$16.03, or $453.97. That's near its recent low point, and the delta ratio is much lower at -0.2467. It implies there is a greater than 75% chance of keeping all this income without having to buy at $470.00. That is attractive for long-term investors.

The bottom line is that shorting puts and calls is a great way to collect income while waiting to either buy in or sell Dell shares.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com