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Philstockworld September Top Trade Review

Image result for top trade ideasYes, this is Thursday morning's PSW Report.

We were discussing building portfolios using things like our Top Trade Alerts in yesterday's Live Trading Webinar and it occurred to me that we haven't done a review since July so I think we have some catching up to do – especially as we haven't finished reviewing 2017's trade ideas yet.  We're usually about 6-9 months behind because our Top Trade Alerts are usually for long-term opportunities, not short-term set-ups.  

So far, through October, we had 40 winning trade ideas and 6 losers for a very nice 86.9% winning percentage and the Sept/Oct trades had made $59,615 by July.  As usual, our losing trades tend to turn into winners and one of our losers was Celgene (CELG) but they popped right back from a $425 loss to, currently, a $250 gain but that's only "on track" for our projected $13,000 gain if all goes well so STILL great for a new trade entry – our losers often make the best future winners – that's why these reviews are important!  

That brings us up to 41 winners and 5 losers for an 89% winning percentage for 2017 so far and I very much doubt we'll beat that into the year's close – but let's find out together as we review our November and December Top Trade Ideas to finish out the year.  Of course, it's a fairly arbitrary snap-shot to see how 2-year trades are doing at any given point in time but I find that 6-12 months is a good time to make adjustments if necessary as you still have more than a year to recover and you have 2-3 quarters of earnings to give us better information to make our decisions on.

That's right, we are FUNDAMENTAL investors so we tend not to pay attention to the day to day BS the market does.  Often if a stock we like gets cheaper, we buy MORE because, if you're not going to buy low – when are you going to buy?  

Thursday, Nov 2nd was a busy day as we sent out a Top Trade Alert for 3 stocks;  TEVA, M & CBI:

  • Sell 5 TEVA 2019 $12.50 puts for $3 ($1,500) 
  • Buy 1,000 shares TEVA for $11.91 ($11,910) 
  • Sell 10 TEVA 2019 $10 calls for $3.75 ($3,750)

That's net $6,660 for 1,000 shares of TEVA and the dividend is $1.09 (16%) while you wait to see if you get called away with a 50% gain. 

Teva exploded higher and all goes as planned on that fairly conservative play which is already at net $9,100 plus $85 in dividends (they don't pay them anymore) for a profit, so far, of $2,525 (38%) and we won't get any more dividends but we will make our last $900 as the premium expires on the short calls.

  • Sell 10 M 2020 $15 puts for $3 ($3,000)
  • Buy 20 M 2020 $18 calls for $4.20 ($8,400) 
  • Sell 20 M 2020 $22 calls for $3.10 ($6,200) 

That's a net credit of $800 with $8,000 more upside at $22 and the worst case is being assigned 1,000 shares at net $14.20, which is 25% below the current price.  Upside potential is $8,800 (1,100%).

I love starting with a credit!  M also blasted over our range and the 2020 $15 puts are down to 0.30 ($300) while the $18/22 bull call spread is now $19/14.80 for net $4.20 ($8,400) so net $8,100 is up $8,900 or 1,112%.  Since that's more than we expected to make (vaguries of option pricing), there's no reason to not cash these in a year early.

  • Sell 10 CBI 2020 $12.50 puts for $4.10 ($4,100) 
  • Buy 20 CBI 2020 $12.50 calls for $5.60 ($11,200) 
  • Sell 20 CBI 2020 $20 calls for $3.40 ($6,800)

This one nets $300 on the $15,000 spread that's $4,000 in the money to start.  Upside potential is $14,700 (4,900%) and worst case is owning 1,000 shares of CBI for $12.80, 15% below the current price. 

This one was complicated as first CBI got 2.4722 shares of MDR in a merger but then MDR did a 1 for 3 reverse-split so we ended up with 0.82407 shares of MDR but our options were the same strikes on MDR and very deep in the money now with the $12.50 puts down to $1.60 ($1,600) and the $12.50 ($3.80)/$20 ($1) spread at $2.80 ($5,600) for net $4,000 which is up $3,700 (1,233%) but we cashed ours out on the early spike as we didn't want to deal with the uncertainty.   

Monday, Nov 6th we had an opportunity to buy DIScheaply and we always like to buy DIS when it's cheap.  

As a new trade on DIS, I'd go this way:

  • Buy 10 DIS 2020 $90 calls for $17.50 ($17,500)
  • Sell 10 DIS 2020 $110 calls for $8.25 ($8,250)
  • Sell 5 DIS 2020 $92.50 puts for $8 ($4,000)  

That's net $5,250 on the $20,000 spread so $14,750 (280%) upside at $110 in two years.  

We're already at goal and the short puts have fallen to $3.50 ($1,775) while the $90/110 bull call spread is now net $13 ($13,000) for net $11,225, which is up $5,975 (113%) and that's on track for our expected 280% gain so still good for a new trade with another $8,800 left to gain.

As I was saying in the webinar yesterday – there's no need to chase momentum stocks when we can construct a simple spread on a blue chip stock that will outperform anything else that's out there.  In this case, our worst-case would be owning 500 shares of DIS at $92.50 ($46,250) plus the $5,250 we spent on the spread so $51,500/500 is $103/share, which is where the stock was trading at the time.  

When your "risk" is owning a blue-chip stock like Disney at a price that's low in it's long-term channel, you can trade with a lot more confidence and, more importantly, you can ride out a market correction confident that Disney will likely still be in business 10 years from now, which can give you the confidence to buy more while others are panicking out of their more questionable positions.

Thursday, Nov 9th, Macy's was still cheap, so we picked it again.  After all, it's called a Top Trade Alert – not an "Almost the Best Trade Idea of the Day Alert."  And no, we almost never send out two so close together but I was banging the table on M below $20 the whole month.  Once again, those annoying Fundamentals…

M/Jabob – Over $18 already, silly boy.  cool  Earning $3 per $18 share could be my Stock of the Year for next year since LB has gotten away from us.  

In the very least, M should be a Top Trade today as we can certainly say we'd LOVE to own them at this level:

  • Sell 10 M 2020 $20 puts for $6 ($6,000)
  • Buy 30 M 2020 $15 calls for $5.20 ($15,600) 
  • Sell 30 M 2020 $22 calls for $3 ($9,000) 

That's net $600 on the $21,000 spread that's $3 ($9,000) in the money to start (but you have to clear $20 to cash in the longs without impairment).  Seriously, this would be my Trade of the Year for 2018 if it were Thanksgiving at this price!   M is already in the OOP and LTP and I'll consider later if I want to adjust but today's report justified our targets.  

Notice we got much more aggressive after earnings and sold $20 puts and widened the spread.  It's a good contrast of styles vs our pre-earnings trade and the short $20 puts have already fallen to 0.80 ($800) while the $15/22 spread is deep in the money at $6.60 ($19,800) so net $19,000 is up $19,600 (3,266%) and not worth keeping for another year just to make $2,000 more – we know we can do better than 10% with a new trade!  

Friday, Nov 10th we turned our attention to Twittter, who were struggling at the time.  You might notice a theme here – we like to buy good companies that have gone out of favor.  

Our OOP target for them is $18 and that's sensible but it's for Jan and we'll be called away and it's $20 in the LTP – also to be called away with full gains.  

As a replacement trade, I don't want to go crazy and I think either their new stuff works or it's an epic fail so I think just a bull call spread is good though there are no 2020s yet, so that's annoying.  Still, I'm worried they will pop from here so let's lock it down and add:

For the OOP:

  • Buy 15 TWTR 2019 $15 calls for $6.60 ($9,900) 
  • Sell 15 TWTR 2019 $22 calls for $3.10 ($4,650)
  • Sell 5 TWTR Jan $21 calls for $1 ($500) 

That's net $4,750 on the $10,500 spread so $5,750 (121%) upside potential if TWTR gains just 10% next year.  Of course our goal is to sell at least $500 worth of calls every other month and knock off $3,000 or so from our basis.

For the LTP:

  • Buy 50 TWTR 2019 $15 calls for $6.60 ($33,000) 
  • Sell 50 TWTR 2019 $22 calls for $3.10 ($15,500)
  • Sell 20 TWTR Jan $21 calls for $1 ($2,000) 

Here we're netting in for $15,500 on the $35,000 spread so the upside is $19,500 (125%) and hopefully $12,000 worth of short calls to sell.  Of course when 2020s come out we'll probably roll our long calls to those, which will then give us more of a safety net to sell more short-term calls (and puts when there's a dip). 

Essentially they are the same trade but in different amounts.  I don't want to count it as two wins so call it one trade but I will take the LTP example, which is now $16.25/11.35 for net $4.90 ($24,500) less the short Jan calls that expired at $1.50 ($3,000) is net $21,500 for a $6,000 profit (39%) and well on track for the full $35,000 if TWTR simply holds $22 into January though we wisely cashed this one out when TWTR was ridiculously high at $45.

That's why we take outperformers off the table.  We cashed out with about $14,000 in profits and it just wasn't worth waiting the rest of the year to make another $5,000 as we were tying up $30,000.  Always consider whether or not each trade is the best use of your cash at any given time…

Tues, Nov 14th we liked the dip in Novartis (NVS) to the $80 line and they've had a wild ride since, from $91 to $72 but now we're back to $84 but, because we SOLD premium to suckers who thought they knew what was going to happen – we're still coming out nicely ahead:

Due to the change in categorization of high blood-pressure, I want to do a long play on NVS.  They aren't particularly cheap at $83 but I feel good about the premise that they'll get more business and have good quarters moving forward.  So for the LTP:

  • Sell 5 NVS 2020 $75 puts for $5 ($2,500) 
  • Buy 10 NVS 2020 $80 calls for $9.20 ($9,200) 
  • Sell 10 NVS 2020 $100 calls for $2.25 ($2,250) 

So that's net $4,450 on the $20,000 spread that's $3,000 in the money to start and we'll see how it goes and probably sell some calls along the way.  This is just a small position to remind us to watch it but, if it takes off, it's still good for $15,550 (+300%) so fine either way.

Despite the gyrations, the $75 puts are ow $2.80 ($1,400) and the bull call spread is now $9.90/1.80 for net $8.10 ($8,100) so net $6,700 is up a modest $2,250 (50%) – they can't all be 10-baggers…

Fri, Nov 17th we finally blow our winning streak with GT, which had a nice initial pop but then just died for the rest of the year.  

GT/Calch – I think they rode the wave of pent-up demand (from the recession) that has boosted the whole auto sector.  I don't think it will be as easy moving forward but tires do wear out and people buy new cars so it's a great company to buy on the dip.   We used to own them at $10, then they got expensive – it's hard to love them at $30 but it is a good price.  

Since you can sell the 2020 $28 puts for $4, that's free money (as $28 is a great price anyway) and then you can use that to buy the 2020 $25 ($7.85)/$35 ($3.30) bull call spread at $4.55 and then you are in the $10 spread that's half in the money for net 0.55.  That's so good we should do 10 of them in the LTP!   That makes the upside $9,450 (1,718%) at $35 in 2 years and worst-case is you own the stock at $28.55.  

At $23, those $28 puts are now $6.15 ($6,150) while the bull call spread is $2.25/0.40 for net $1.85 ($1,850) so net -$4,300 is a $4,855 (8,827%) loss – you live by the leverage, you die by the leverage!  We cashed the trade on the Jan spike but, if you are still in it, I wouldn't panic.  You can roll to a lower put strike when the 2021s come out and I'd buy back the shor $35s but wait and see what happens on the long $25s.  I'm not super-enthusiastic about them but I wouldn't panic out either.

Tuesday, Nov 28th we made 3 picks and two I'm worried about; HBI, M and GE:

OK, having given it some thought, I would like to play our 2018 Trade of the Year OFFICIALLY as such:

In the OOP let's:

  • Sell 15 HBI 2020 $20 puts for $3.50 ($5,250) 
  • Buy 25 HBI 2020 $18 calls for $4 ($10,000) 
  • Sell 25 HBI 2020 $23 calls for $2 ($5,000) 

That's a net credit of $250 and, if all goes well and we're over $23 in 2020, we'll collect $12,500 more so $12,750 profit potential is 5,100% (it's tricky with credits).  

HBI has fallen below our targets and we've rolled with the changes so far but the position is down with the $20 puts at $3.70 ($5,550) and the $18/23 spread at $1.50 ($3,750) so that's net -$1,800 which is down $1,300 (260%) from the original $500 credit.  In our portfolios, we've bought back the short $23s (0.90) and rolled the $18 calls ($2.40) to the $13 calls ($5.50).  

Also from the morning post – we already have M but, as a new trade, I like:

  • Sell 15 M 2020 $20 puts for $4.65 ($6,975)
  • Buy 30 M 2020 $18 calls for $5.75 ($17,250) 
  • Sell 30 M 2020 $25 calls for $3.12 ($9,360) 

That's net $915 on the $21,000 spread so upside potential is $20,085 (2,195%) if M can gain about 15% over 2 years.  Worst case is you own $30,000 worth of it at $20.46, which is still a buck below where it is now so figure the risk is stopping out with a $5,000 loss (400%) vs the reward of $20,000 and you are $7,500 in the money to start.  

Yes, another M trade!  Can't say you didn't have a chance to buy them, right?  In this case, we're net $7 on the spread for $21,000 and the short puts are 0.80 for $1,200 so net $19,800 is up $18,885 (2,060%) so living by the leverage yet again!  

GE is the other one I strongly believe in and that's another one we own but no longer worth owning the stock with the cut dividend so a new play would be:

  • Sell 30 GE 2020 $20 puts for $3.60 ($10,800) 
  • Buy 40 GE 2020 $15 calls for $4.70 ($18,800)
  • Sell 40 GE 2020 $22 calls for $1.60 ($6,400) 

Here we're netting in for $1,600 on the $28,000 spread and it's an aggressive put sale with GE at $18.35 at the moment – so be careful with that but my thought is GE is not a BK risk, so the downside risk of ownership is far less than most stocks.  

The horror!  What a disaster GE has been but I still like them down here.  We've rolled our way down to 2x the 2020 $10 calls at $3.15 (still $3.15) with no covers and still the short $20 puts as hope springs eternal (and we're wating for 2021 to roll)  The $20 puts are now $7.70 $23,100 and the $15/22 spread is $2,800 so net -$20,300 is a loss of $21,900 (1,369%) but I really want to give GE one more year to turn around. 

Thursday, Nov 30th we added 3 hedges and they all did very well during the Jan sell-off and we did cash them in at the time so I'm not going to count them as winners since they ended up being the short-term gains they were meant to be but it's not relevant almost a year later.

In fact, on Wednesday, Dec 6th, our Top Trade Idea was "Cashing In!":

Happy Holidays Top Traders!  

In case you missed the memo, PSW is taking all of it's portfolios back to CASH!!! because we feel the broad markets are grossly overbought and we are concerned there will be few buyers for our positions if the market does start to turn down (low liquidity).  

So, better safe than sorry and that includes all of our positions, even the Top Trades.  

We will continue to pick individual trades, like the one below, and there's nothing wrong with keeping good positions if you feel you are well-hedged and don't mind riding out a 20% correction.  

My attitude about that is that, if you have $130 now after starting 2017 with $100 and the market falls 20%, then you'll have $104 and, when the market comes back, you'll have $120 again.

We, on the other hand, if we are right, will still have $130 when the market pulls back and $150+ when it comes back as our new positions make all the gains your old ones will.  On the downside, if the market rallies 10% more, you'll have $143 and we'll have $130.

On the whole, it's a risk/reward game and I'd rather miss gaining $13 than losing $26 as I can always make another $13 with $130 but making $26 with $104 is tricky!  

Nonetheless, we did have a trade idea just in case our cashing out idea turned out to be a mistake (it wasn't as we were almost all cash when the market turned down and we had a chance to go shopping at the bottom – setting us up for a great 2018).  

Speaking of hedges.  TNA is the ultra-long Russell ETF at $67.87, well off the highs at $73.50.  If you think you will regret going to CASH!!! then you can take an upside hedge using something like this, which will give you great gains if the rally continues (or Santa Clause comes to town).

Just like any play, a bull call spread will keep you from losing too much and the longer spreads have a lower net delta and that means you won't get too burned on the downside.  So, for example, we are cashing in the OOP (the SA people voted yes too) at $300,000ish and usually we make about $10,000/month so, if we think we'll miss out $20,000 in gains during December and Jan, we can:

  • Buy 20 TNA April $60 calls for $12 ($24,000) 
  • Sell 20 TNA April $70 calls for $6.50 ($13,000) 
  • Sell 3 TSLA April $330 calls for $19 ($5,700) 

The net cost of the trade is $5,300 and it returns $20,000 if TNA is simply over $70 in April so you'll capture $14,700 (277%) in profits if all goes well.  If not, unless TSLA has a major rally, you will only lose $5,300 at most but, more likely, you'll be able to salvage half of that by closing out the bull spread if the market is heading lower – as we expect it will.  

You can, of course, use anything to offset the bull spread but I feel pretty good about shorting TSLA, rally or no rally!  

TNA expired in April at $71.71, so the spread made the full $20,000 as the short TSLA calls expired worthless, well below $330 so we got the full $14,700 (277%) profit on that one.  See, you can make great money while sitting in CASH!!! on the sidelines.

Thursday, Dec 7th was Peal Harbor Day and we like Natural Gas (UNG) into this Jan:

Just because we cashed out, doesn't mean we don't have any more trade ideas.  This one is fun:

UNG/Den – GMTA!  If you want to play UNG here ($5.55) instead of /NGV8 at $2.80, I'd go this way:

  • Buy 50 UNG 2020 $4 calls for $2.05 ($10,250)
  • Sell 50 UNG 2019 $5 calls for $1.25 ($6,250)
  • Sell 25 UNG 2020 $5 puts for 0.70 ($1,750) 

That's net $2,250 on the $5,000 spread but you have a year to roll the short calls so hopefully a $10,000 spread if all goes well (the 2020 $6 cals are $1) and worst case is owning 2,500 UNG at $5 + $500 ($13,000).   If we had a portfolio, I'd put this in it!  

UNG reverse split 1 for 4 so we have 12.5 of the 2020 $16 calls, now $8 ($10,000) and 12.5 short Jan $20 calls, now $3.60 ($4,500) and 6.25 short 2020 $20 puts are now $1.50 ($938) so net $4,562 is up $2,312 (102%) and the Jan $20 calls can be rolled to the 2019 $22 calls at $3.60 even to set up a $16/22 spread for next year.  

Friday, Dec 15th we found 3 trade ideas we liked enough to share on Top Trades and they were; TEVA, ORCL and KMI:

As a new, SENSIBLE position on TEVA, I'd go for:

  • Sell 5 2020 $17.50 puts for $4.10 ($2,050)
  • Buy 10 2020 $15 calls for $6.70 ($6,700)
  • Sell 10 2020 $22.50 calls for $3.25 ($3,250) 

That's net $1,400 on the $7,500 spread so $6,100 (435%) upside potential and you don't have to keep guessing what it will do month to month and risk losing everything when you get it wrong.  TEVA's at $18 now, we're not asking much of it over 2 years. 

It is nicer when they take off like a rocket and give you no trouble, right?  We had an aggressive target but we're already there a year in advance annd the short puts are down to $2 ($1,000) while the $15/22.50 spread is now $4.50 ($4,500) for net $3,500 and that's up $2,100 (150%) and exactly on track for our full 435% gain.  It's funny with trades like this as they are still good for almost a double of a $3,500 entry at this point but – we can do better than that as a new trade so, while we wouldn't cash it in – we don't like it as a new trade either.

We'll be shopping for companies that are likely to benefit from the GOP Tax Plan.  CFRA put up a list of potential big winners of the GOP tax plan and Oracle (ORCL) just reported yesterday and is selling off a bit, but we think they are playable here ($47.50) for a nice, long entry:

  • Sell 5 ORCL 2020 $47 puts for $6 ($3,000) 
  • Buy 10 ORCL 2020 $45 calls for $8 ($8,000) 
  • Sell 10 ORCL 2020 $52.50 calls for $4.75 ($4,750) 

That spread is net $250 cash on the $7,500 spread so your potential net profit at $52.50 is $7,250 (2,900%) and your worst case is owning 500 shares of ORCL for net $47.50, which is the current price.  While we limit our upside we have great leverage and we're starting off $2,500 in the money so even a flatline from here will be a nice winner.  Ordinary margin on the play is $2,708 so the return on margin is fantastic as well.

While ORCL may be disappointing the bulls this morning, the growth in their cloud platform to $1.5Bn (up 55% from last year), their large pile of overseas cash and their huge benefit from changes in the tax code should get them back over $50 very quickly – even if they have to buy back their own stock to get there.

ORCL hasn't gone anywhere but, fortunately, we sold premium so that's fine with us.  The $47 puts are now $3.85 ($1,925) and the bull call spread is now $4 ($4,000) for net $2,075 and that's up $1,825 (730%) which is not at all bad for a stock that's lower now than when we came in and there's still $5,500 more to gain!  

Another good group of companies to look at are the companies that are paying a high effective tax rate.  This table was compiled by Credit Suisse.  Kinder Morgan (KMI) at $17.85 is a good one to look at and Schlumberger (SLB) at $62.50 is still cheap as well, coming off a down year and moving into a better cycle.  Both rely on the energy sector, which I'm down on but KMI is more of a natural gas play, which I'm long on – so let's set up a trade with them as:

  • Sell 10 KMI 2020 $17 puts for $2.35 ($2,350) 
  • Buy 30 KMI 2020 $17 calls for $2.85 ($8,550) 
  • Sell 30 KMI 2020 $20 calls for $1.55 ($4,650) 

Here we are netting $1,550 on the $9,000 spread so the upside potential at $20 is a $7,450 (480%) and worst case is owning 1,000 shares of KMI for net $18.55, which is aggressive as it's more than they are selling for now but I think KMI is way too cheap here, given both the tax advantage and the expected increase in traffic as the US pushes more and more Natural Gas overseas on LNG ships.  Margin on this spread is just $1,603, so another super-efficient way to put that sideline CASH!!! to work for you.

See, these are not complicated trading premises, are they?  We look for FUNDAMENTAL facts that will favor certain companies and use them to our advantage in selecting long-term plays.  It sure beats chasing momentum trades.  

KMI hasn't made much progress, price-wise but the short $17 puts have fallen to $1.35 ($1,350) and the $17 callls are still $2.30 ($6,900) but the short $20 calls are now just $1 ($3,000) for net $2,550 – up a modest $1,000 (64.5%) so far and definitely still godd for a new trade with $6,450 still to gain!

Thursday, Dec 21st we had trade ideas for BBBY and GNC – both have been very poor performers so far:

One spot we chose not to pick was Bed Bath and Beyond (BBBY), who I said I liked but I hoped they would miss earnings and disappoint so we could initiate a trade at a cheaper price.  Well they did miss and now they are down 12.5% at $21.50, which brings their market cap down to $3Bn DESPITE earning 0.44 per share (vs 0.36 expected) or $63M on $3Bn in revenues.  Q4 is half the year for BBBY so 3 x $60M is $180M + another $180M is a super-conservative $360M with a p/e of less than 10 so the sell-off is ridiculous and we would love to add a trade here (though we're not rushing in in case they get cheaper).  At the moment I like:

  • Sell 10 BBBY 2020 $20 puts for $3.60 ($3,600) 
  • Buy 15 BBBY 2020 $15 calls for $9.50 ($14,250) 
  • Sell 15 BBBY 2020 $22.50 calls for $4.50 ($6,750) 

That works out to net $3,900 on the $11,250 spread so the upside potential at $22.50 is $7,350 (188%) if BBBY manages to get back over $22.50 in two years.  The ordinary margin on the short puts is just $1,783, so it's a super-efficient trade and your worst case is owning 1,000 shares of BBBY at net $23.90, so it's an aggressive trade as the stock is cheaper than that now but we feel it's a great value here BUT, keep in mind we think it will go a bit lower, maybe test $20 so we're probably only going to buy 1/3 now and see what happpens.    

As I noted, this was an intial entry and I expected them to trade lower so we could add more.  In our Long-Term Portfolio, we now have the followning position on BBBY after adjusting:

Short Put 2020 17-JAN 17.50 PUT [BBBY @ $18.82 $0.00] -20 1/8/2018 (491) $-5,600 $2.80 $-0.09 $-2.20     $2.71 $-0.16 $180 3.2% $-5,420
Long Call 2020 17-JAN 15.00 CALL [BBBY @ $18.82 $0.00] 30 4/20/2018 (491) $13,950 $4.65 $0.70     $5.35 $0.10 $2,100 15.1% $16,050
Short Call 2020 17-JAN 22.50 CALL [BBBY @ $18.82 $0.00] -10 4/20/2018 (491) $-2,200 $2.20 $-0.03     $2.18 $0.09 $25 1.1% $-2,175

In the original play, those $20 puts are now $4.40 ($4,400) and the $15/22.50 bull call spread is now net $3 ($4,500) for net $100 which puts the overall spread down $3,800 (97%) but I still like it as a new trade that can now gain $11,150 (11,150%) is BBBY can claw back to $22.50 by next Jan.  I guess if I were doing a new trade, I would sell those $17 puts for $2.85 instead – to be more conservative and that would net $1,650 – still a fantastic entry!  

Another huge sale is being throwin on GNC Holdings (GNC), who are handing out 14.6M shares of stock to holders of $99M worth of debt.  That values the stock at $6.78 but it dilutes current shareholders by 21%, so the stock is dropping 21% but I like paying off debt with stock instead of cash so the 20% drop in the stock, to $3.95, is a great buying opportunity.  In fact, you can still sell the 2020 $5 calls for $2 so, here's the play:

  • Buy 3,000 shares of GNC for $3.95 ($11,850) 
  • Sell 30 2020 $5 calls for $2 ($6,000) 
  • Sell 30 2020 $2 puts for $1.20 ($3,600) 

Here your net is $2,250 for 3,000 shares so 0.75/share and that means you would make $12,750 (566%) if called away at $5 in Jan, 2020.  Worst case is 3,000 more shares are assigned to you at $2 and then you average $1.375 per share ($8,250).  Risking $8,250 to make $12,750 is a pretty good risk/reward ratio and it's the kind of play you can make in an IRA, since the puts have such a low strike ($6,000 even at 100% margin).  As with BBY, it's a bit of a falling knife so these are just outlines for trades – we hope to get better prices as they bottom out.

This one has had it's ups and downs but mostly downs and the trade is now net $2.02 ($6,060) which is amazingly ahead of the game because we sold so much premium it didn't matter that we dropped 25% from our entry.  That puts us up $3,810 (169%) and I still like GNC to turn back up but, of course, if it falls to "just" up 100% – I'd pack it up and move on.  The nice thing about this trade is, as long as we're between $2 and $5 – our short puts and calls continue to lose money and our cost basis goes lower!

This is what "BEING the House!" is all about – selling premium through short options gives us a tremendous advantage in the market and it wasn't so much that I loved GNC as I loved the idea of netting into the trade for 0.75 so that, even if the stock dropped 50%, we'd still have a winner and I felt there was a better than 50/50 chance that things would not get that bad which made the risk/reward on the spread look very positive.  

That was our last Top Trade for 2017 and, for Nov/Dec we finished with 13 winners and 4 losers, which trashes our overall percentage for the year, bringing us down to a still acceptable 54 winners and 9 losers for an 85.7% winning percentage but I'm still rooting for a few of those losers to turn around!

Top Trade Ideas are pulled from our Live Member Chat Room at PSW and they are trade ideas I think have a high probability of paying off.  Because of that, they can be erratic and some months we only have a couple and some months we have a lot but 54 in a year means we average one a week and it's always a good way to begin building a new portfolio.


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  1. Good Morning, All!

    The webinar replay is now up!

  2. We have a tyranny of the minority despite complaints from the right:

    In both Shelby and Citizens United, five Republican appointees struck down democratically enacted laws, and in doing so wound up substantially increasing Republicans’ odds of electoral success. In Janus, the public sector unions case, they’ve likely done it again.

    So on the one hand, we have a president who lost the popular vote, the second time that has happened in the past five elections; a House districted in such a way that even a large, 5-point victory by Democrats in the popular vote in November wouldn’t give them a majority of seats; a Senate elected by a skewed, unusually white cross-section of America, where the median Senate seat is substantially more conservative than the median American voter; and a Supreme Court that is dismantling one party’s political economic base and helping preserve, even strengthen, the other party’s anti-majoritarian hold on power.

    On the other hand, it’s definitely true that large groups of people attacking you on Twitter can be uncomfortable sometimes, and perhaps even feel “mob”-like. But contra Rosen, I’m much more worried about the ways America is falling short of any form of majoritarianism, reasoned or otherwise.

  3. Could we see another housing crisis – but outside the US:

  4. Good Morning!

  5. Expand your time horizon:

    In 1800 the U.S. had the same real GDP per capita as North Korea does today!  There are only about 10 countries with a 2017 GDP per capita below what the U.S. had in 1800, which highlights the amazing progress the world has made over this time.  By 1865 U.S. real GDP per capita was similar to modern day Kenya and by 1926 it was similar to contemporary Ukraine.  All of this progress came from the tired, poor, huddled masses yearning to breathe free.

    So when you consider what you want to accomplish in life, don’t forget that in order to build a great business, family, product, brand, community, or movement it will take longer than you think.  So extend your time horizon and stop focusing on the coming week or quarter and start focusing on the coming decade and century.  Your success will not be determined by your next project or your next endeavor, but by your collective work, by the totality of your actions, over a lifetime.  Because if the wretched refuse from the teeming shore can create the most powerful economic engine in the world, just imagine what you could do.

  6. GNC – Holy cow ! ! !  

    Up huge.

  7. albo/GNC

    Finally!  Any news you see?

  8. I love the play by play hurricane coverage….what really is for the rest of us not in it…. :(

  9. Good morning! 

    Short day for me as I have to leave at 11 for a PSWI/New Age meeting with an NJ group we hope to work with as our first new expansion state.  

    We'll be starting a new investment vehicle in the Spring and raising about $20M to expand pot licenses in various states.  It will be set up more like a hedge fund and the minimum investments will be $1M – contact Greg (at philstockworld dot com) if you are going to be interested in participating or if you have a group working on a license that would like an experienced partner (who has $20M to invest).  

    Most likely we'll use our $20M to get a co-investor to put up another $20M, which should be enough to put us into 10 more states.  

    Big Chart – Those 50 dmas remain magically bouncy.  Big gains this morning too as the Dollar collapses:

    Not helping oil or /RB very much:

    /KC is going to be a buy again:

    Not getting another entry on /SI with a weak Dollar angry

    Tyranny/StJ – It's just an Oligarchy on the way to becoming a Monarchy if Trump gets his way.  They always say Democracy is an "experiment" – well, this might be the end of it…

    Meanwhile, markets blasting higher as we make noises of Trade Talks with China being back on.  

    GNC/Albo – That's good timing – see my comments in the above post.

    Hurricane/1020 – Well, now that I have a home in Florida, I'm one of those people who cares!  

  10. Dclark  -This from Briefing :
    GNC Holdings receives notice that CFIUS has concluded its review of the Securities Purchase Agreement with Harbin Pharmaceutical and determined that there are no unresolved national security concerns 
    Receipt of CFIUS clearance satisfies one of the remaining conditions to the closing of the transactions contemplated by the Securities Purchase Agreement. The closing remains subject to certain additional closing conditions, including receipt of the remaining regulatory approvals in the PRC and the negotiation of definitive documentation of the Chinese joint venture between the Company and the Investor. The Company continues to target completion of the Transaction by the end of 2018, but there can be no assurance that the remaining closing conditions will be satisfied or waived within that timeframe.

  11. Thanks, Phil. 

  12. albo/GNC

    Thank you!

  13. RE: New Age/PSWI – are the investors from this last round due any sort of paperwork, or is there anything else we need to keep an eye out for in the next few weeks? Leaving town for a bit and making sure I'm covered.

  14. Phil – It's not about 'caring' for people or if you have a financial need to care, We All Care.


    It's just appears coverage is a bit over the top….

  15. All out of /CL – good one!

  16. PSWI/Ati – As long as you sent in your money, all is well re. this round and it's our intention that the people who invested in this round of PSWI will be "founders" included in the new venture when we form it (and PSWI as an entity will also be involved, of course).  

    Caring/1020 – I agree it's a bit much and they do this with false alarms too, which is annoying but we're talking life and death stuff with a storm this large so I'm willing to be a little bored (you can still switch channels) if they can save a few extra lives.  As we see from many storms before, you can warn people 100 times and they still end up on the roof of their home saying "I had no idea this could happen."  

    My plan, when I'm in Delray, is to head for Orlando (3 hours) as soon as there's even a chance we'll be hit as I don't want to have no power for 3-7 days.  I like Orlando anyway and I have family there so it's a good excuse to visit at worst. 

    /CL/Ati – Congrats, nice fade.  I still have that last /RB from the webinar, but I'll take it and run now. 

    That caps off a perfect week in the Futures.  I needed that! 

  17. Graham departs from best-friend McCain, goes all in on Trump

  18. We just did the same thing we did 10 days ago on /RB – it's a nice range to play:

    A “Very Lucrative” Short

    “During this morning’s highs, it went up to $2.06 per gallon and we shorted it right away and it came down to $1.98,” Phil Davis, trader at PSW Investments in New York, said in an interview with on Tuesday. “That was a gain of about $2,500 per contract, a very lucrative short for us.” He added:

    “From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there…There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”

    In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.

    “With every holiday, we drive the price of gasoline up in anticipation of demand. But we’re constantly disappointed because every new car today is averaging 35 miles per gallon versus the 25 miles we get on older cars. That’s 40 percent less gas consumption. And it’s happening every year.”

    “The population is basically static and people aren’t driving more miles. So, the usage of gasoline continues to go down as we get more fuel-efficient cars. That’s why every time there’s a big spike in gasoline driven by expectations of demand, I will just short it.”

    Higher Pump Prices, Stockpiles

    While RBOB futures have slipped beneath $2, pump prices of gasoline are well above year-ago levels and more than 50 percent higher than their cyclical low in February 2016, according to the U.S. Energy Information Administration.

    The EIA said that in the US East Coast region, known in market lingo as PADD 1, the pump price as of August 27 was at $2.764 per gallon versus $2.337 a year ago. For the Midwest, or PADD 2, it was at $2.760 against $3.307 previously, and for the Gulf Coast, or PADD 3, it was at $2.569 versus $2.156. For all of the US, the average was at $2.827 against $2.399 previously.

    Davis said he could understand if gasoline futures rose slightly in November in the event sanctions on Iranian oil drove up the US crude market as well as Brent. “Even then, I still believe there’ll be adequate supply of gasoline, and we do not import that from Iran. It’s fine if RBOB reflects a little of the tightness in crude but not on a relative dollar-to-dollar term.”

    EIA records show stockpiles of gasoline mostly higher this year than in 2017. PADD 1 inventories were at 64.1 million barrels as of August 25 versus 62.7 million a year ago. For PADD 2, they were at 53 million against a previous 52.2 million. Only PADD 3 inventories were lower at 80.9 million versus 82.4 million a year ago. Still, stockpilesfor all of the US were higher at 232.8 million against 229.9 million previously.

    “RBOB has plenty of juice out there,” said Jim Ritterbusch of Chicago-based energy markets consultancy Ritterbusch & Associates, adding that inventories were running as high as seven million barrels above five-year averages.

    “Until last week, refiners were running at the near-record pace of gasoline production. They were responding to very strong margins, which remain pretty good,” he said. Refining margins for RBOB, known in energy industry parlance as the gasoline crack, are at around $18 per barrel now versus August highs of about $22, charts show.

  19. GNC take a look at the Jan 19X puts. I don't remember ever seeing those kind of numbers on any low price stock.

  20. Well, gotta run, hopefully I'll make it back before the close but, if not, I'll catch up tonight.

  21. Palotay – I started watching Active Measures and it's really scary what these guys are saying. Even if 1/2 is true, we have a Mandchurian candidate in the White House.

  22. Exactly, and their hypothesis seems to fit the known facts very well.  Why else would Trump be so blatantly pro-Russia?  Very scary.

  23. Nike stock closes at a record high

  24. Good morning! 

    That meeting went 6 hours yesterday.  Met with group looking to set up operation in NJ and with potential 2nd round investors and met with Asian manufacturers of heating elements (pens), which are the things the tobacco companies (and the FDA) are favoring over vaping – yes, that's how fast we adjust our output!  Also made a deal to work with what is currently the #1 vaping system and sat down with lobbying group re. getting a license in NJ.   So it was a full, productive meeting(s), all held in the back room of an Italian restaurant near Newark to accommodate all the people who flew in – a very Jersey way to do business!  

    Also, since most of us are from NY/NJ there were as many as 5 simultaneous conversations among 10 people, which really freaked out the Chinese visitors!  I don't usually notice it as it's our default mode but I do think it's one reason you can't do Wall Street in other parts of the country, or the World – as there simply isn't enough time in the day to have linear discussions in group meetings.  

    Meanwhile, we're back to where we started the month so the shorts are getting interesting again. I don't think China is actually fixed and the hurricane is a bit of a bust as it lost a lot of strength but a very strong typhoon (hurricane) is hitting Asia now.  I think, on the whole I'd rather just see how next week plays out:

    Game on for /KC again.  /KCN9 is our favorite at $108.50 but, realistically, you can certainly just play /KC off the $100 line, looking for 0.02 at $375/penny ($750), which is quite nice.

    Meanwhile, making our return to the end of Aug highs in the indexes is made less meaningful when you consider that it's coming against a 1% weaker Dollar so, while you may get the same amount of Dollars for your equities as you did 2 weeks ago, those Dollars convert to only 99% of the buying power you had two weeks ago.

    I like playing /DX long at the 94 line with very tight stops below.  Should be good fro a bounce off the fall from 95 so 94.2 is weak and 94.4 is strong and that would be $200 or $400 on the move.

    Coming up:

    Friday will bring a data dump from China that investors will be eager to parse. The country will report retail sales, industrial production and fixed-asset investment for August. Enough positive news could help pull the MSCI Asia Pacific index out of its September slump.