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Monday Mayhem – War! What is it Good For? Defense Contractors?

Whee, what a ride!

A very profitable one too if you read our Thursday morning PSW Report and followed our note to short the S&P (/ES) at 3,250 as those Futures contracts pay $50 per point, per contract so a very nice $2,000 per contract gain on the 2nd leg down – after the first set hit our initial $500 goal at the open

Of course, that's nothing compared to our long on Oil (/CL) Futures at $61 as oil topped out this morning at $64.50, paying $3,500 per contract or, if you were more sensible, taking gains of $3,000 off the table into the weekend was PLENTY to make in 24 hours!

It's been a while since I've made any Futures calls because the market had been too uncertain but Thursday we got a hint something was wrong in Iran – so those were good news plays – the kind we love to make.  Natural Gas (/NG) is still playable at $2.16, that one dipped down on us to $2.09 and the proper way to play it was to take the loss below $2.15 and then get back in at $2.10 OR, if you play with more conviction, double down at $2.10 to average $2.13 and then get 1/2 back out at $2.13 and either way your average entry is $2.125 or $2.13 but $2.16 is fine if you missed the initial fun.  For the Futures-challenged, our options spread idea on Thursday morning was:

We also had a USO options spread for those of you who are Futures-challenged but we didn't get the fill we wanted (as the dip didn't last long enough) – so no trade there though you could just pick up the long USO Jan $12.50 calls for 0.40 and wait to sell the Jan $13s for 0.20 and accomplish a very similar spread.  

Mission accomplished so far as the USO Jan $12.50 calls are already 0.75 and the Jan $13 calls are now 0.40 so 0.35 on the spread is already a 75% quick profit and I'd keep a stop at 0.30 to lock in the 50% gain – not bad for a weekend, right?

The VIX Futures are back to 16 on all the uncertainty and we haven't been over 16 for long since October – so a move over that line should be taken very seriously if it lasts a day.  When we spiked higher in August it signaled a 200-point drop in the S&P so 40 points is nothing if this is going to be a real correction.  Of course, so far, this is nothing more than a very small blip in a very huge rally and China will be signing Phase 1 of the Trade Deal on the 15th – so it's going to be hard for the bears to sustain a down move when more "good news" is on the way.

The next "good news" we need to focus on is earnings and this week we have a few but things kick in to high gear next week when the Big Banks begin reporting on Tuesday.  The early reports are going to set quite a tone into the Trade Talks so it's time to dust off our Earnings Portfolio and start looking for some nice set-ups to play into.  

Constellation Brands (STZ) is very interesting on Wednesday as they have taken huge write-offs from their investment in Canopy Growth (CGC), who dropped 66% on them since.  STZ has already written down the investment on their 36% stake in CGC so there's tremendous upside potential if they recover and not too much downside exposure left.  

Other than that, STZ has been a very solid performer and should make about $8.50 per share this year so I'd say $189 is a fair price, but not a great price and, in a situation like that, we can always make an offer that WOULD be a great price, like $150/share and promise to buy STZ for $150 between now and Jan 2022 and, for that promise, someone is willing to pay us $11.50 and we are able to cement this promise by selling the 2022 $150 puts for $11.50, which drops our net entry all the way to $138.50 – 26% below the current price.  

When buying a stock you like (and can afford!) for a 26% discount is your worst-case scenario – it's a good time to make the play!

Lance Roberts wrote an excellent article about Corporate Profits back in November and, rather than quote the whole thing, I strongly suggest you read it.  Just before Christmas, Q3 Corporate Profits came in down $4.7Bn in the final tally and that's keeping me from getting bullish – at least until after (if) we survive these Q4 reports.

Needless to say – be careful out there!  

 


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  1. I guess we are going down again today! 


  2. It's really hard to see a scenario where 4 more years of Trump does not inflict damages to the world that might take a very long time to correct and cost a lot of lives! Just inaction on climate change is bad enough, but general instability in many regions could be catastrophic. 


  3. Image


  4. Good Morning!


  5. Good morning!

    I'm back but I already overslept this morning.  I woke up at 7 and considered hitting snooze but felt like I was awake enough and next thing I knew it was 8:15…  

    While Thailand was an amazing place and I'd love to go back there – the thought of enduring another 17-hour leg in a plane is enough to keep me in the Bahama's, where things are also pretty cheap and the scenery is nice too.  That's always been why I generally don't go to Asia – much as I love it – it's just too much effort to go back and forth.

    I think next time I go (and I will HAVE to go as our deal is done), I'm going to break the trip up with a few day's stop in between.  There are lots of places along the way like Athens, Rome, Algiers, Maui… I'd say Cairo or Abu Dhabi but now it's a potential war zone.

    Anyway, the trip was a success and now we have to execute our plan but it's going to be huge.  Now we have 7 contracts (up from 3) and working on more but one of the contracts is the Thai Military and another is the Ministry of Health so I think we're good to go!

    Looks like we have our first round of financing on the Thai side – $1.3M from our very first joint investor meeting – that's a good start!  

    Thanks to all of you who have been interested in funding this project – I plan to catch up with everyone this week but feel free to contact us whenever you are free to chat as I'm not organized enough to plan conversations in advance yet.  

    Indexes are holding up OK considering – we'll have to see how things play out.  

    Great thanks to StJ, Yodi, Winston and Albo for holding down the fort while I was gone – I really enjoyed reading the conversations as a (mostly) viewer while I was running around in Thailand!


  6. Travel / Phil – Algiers is not super safe at the moment! Not a war zone though! But give Trump another 6 months and you won't be able to travel to another 20 or so countries. Killing Soleimanu was supposed to be deterrence for Iran, and yet we have told everybody to leave Iraq so clearly didn't make it safer, quite the opposite.

    But for now, plenty of possible stops on the way to Asia! The flights are really a hassle! 


  7. /NG / Phil 

    good morning! Welcome home.  
    Could you speak a little more to your thoughts on the /NG long? 
    Thanks!


  8. AAPL hit $300?  WTF?  That's 25x – first time I've though AAPL was overbought in a very long time.

    Of course if AAPL goes down – the whole market will follow.  Earnings are 1/28 but hard to bet against them with these numbers:

    Flurry says Apple whipped Samsung this holiday season.

    And 5G is going to lead to a whole other round of phone buying over the next 24 months.  

    Ricky Gervais praised ‘The Morning Show’ in front of Tim Cook … then roasted Apple’s ‘sweatshops in China’

    4 more years/StJ – I don't know if we'll survive it.

    Image result for agent of chaos trump

    President Trump thought the nuclear deal was flawed because restrictions on Iran would end after 15 years. Now, responding to a U.S. strike, Iran has declared the limits over after less than five.

    Image result for agent of chaos trump

    Incomes/StJ – Horrifying.  

    I found that very interesting in Thailand – Capitalism is practiced there in actuality while it is only given lip-service here.  Most businesses in Thailand are small businesses and a town of 1,000 people can have 200 restaurants as one in 5 homes has some kind of food stand, cooking something special that others line up for.  

    There's no inspections for family restaurants so they just put up a sign and serve food but that's true all over Asia and the food was generally great.  The funniest (to me) was at a train station there were about 10 tables all selling the same dishes – various things on sticks that were dipped in batter and oil that you could buy for 10 Baht per stick (0.33) but what struck me as funny was that the sauce was in a big bucket at the front of the stand and generally there were 3 things on each stick so people would dip and eat and dip and eat and dip and eat – same stick, 3 times.  

    My brother is a germophobe and he would have had a heart attack just thinking about it (so of course I sent him a picture!) but I went with it and it was indeed delicious.  I'd say most restaurants I went to were up to US standards and most food stands were too.  In fact, most places where there was standing food I saw people actually take the temperature of the food – something they never do in the US but really should.  

    Anyway, hard-working, educated, industrious people everywhere I went with lots and lots of craftsmen doing great work for low pay but, at 0.33 per stick – you don't need to make a lot.  Very few mortgages as most people live in family homes and they don't tax them as they are handed down and low taxes (no more than 20% under $33,000) plus a 7% VAT that doesn't apply to fresh food – so people eat that a lot.

    Generally, things in Thailand are 30-50% cheaper than they are in the US and the wages reflect that.  Pretty much everyone works with a (not kidding) 0.67% Unemployment Rate.  Apparently, 64% of the workforce is self-employed!  Their poverty rate is 7.9% vs 12.3% in the US but their poor people are WAY better off than our poor people due to informal social safety nets (monasteries, free food from kind restaurant owners) and, of course, free health care.  

    Speaking of monasteries – We went to get a blessing for the business and Od, the head of our partners at Bienestar, had been a monk at a monastery in Buri Ram (all Thai men serve for 2 weeks to 3 months at about 18) so we went there and we bumped into the Abbot Monk, who is like Cardinal O'Conner in NY – a very big deal – Od had never met him before and it was a great honor.  

    So the Abbot Monk asks what we're doing and we tell him we're blessing the business and he says what kind and we tell him we're bringing CBD to Thailand and it turns out he's very interested as he's an herbalist and, while we're talking, he mentions he's got this joint pain in his knees and wonders if CBD would help.  

    Since our bags were packed in the back of the van, I asked Chris if he had any massage oil samples and he did and we gave one to the monk and he put it on his knee and also on his arms (dry skin) and we even got a picture of him holding our product but we can't use it since CBD still isn't legal so that would not be cool.   

    Anyway, so about 3 hours later, we're having lunch and Od's phone rings and IT'S THE ABBOT MONK!  Calling to tell him that his knee felt better than it had in ages and that his arm was so soft he thought he was having flashbacks to his younger days.  I just thought it was amusing to get a cell call from a Monk but Od was in heaven – it was a huge honor to have the Abbot call him personally and this all bodes very well as the Monk's seal of approval will grease a lot of wheels going forward…

    This guy!

    Related image

    See why I was surprised he called on the cell phone?

    Stops/StJ – I think I should go see Venice before it sinks and maybe Australia before it burns…

    Related image


  9. Well, I think we should give this Global Warming myth another 50 years of study before we go and try to do something about it, right?

    They told Australians they wouldn't have to worry about it for another 100 years as well….

    /NG/Potter – Not more than I said on Thursday in the post.  /NG is becoming globalized and it's down because the US is having a warm winter so far but you can't just go by US demand anymore and other parts of the World are very cold.  Not Australia though, as they have come up with a new way to heat a country.


  10. Phil,

    Currently hold a Jan 2020 65P sold for 8.65….5 contracts

    Does it make sense to see if it gets put to me, or roll to 2022 65P for $9.50. The question really is what are your thoughts on GILD going forward. Thanks as always and welcome back to South FL. 


  11. Jasu 1GILD the put still has 1$ of premium, I have 27 of them and wait for them to expire!!!


  12. Yodi, 

    There are lot of very wealthy people on this site, you being one of them…..OK , I'll wait for some putzch to put it to me, and sell some calls and more puts providing GILD is a good investment going forward.! 


  13. Jasu healthy I hope but not really that wealthy. I look at the past in respect of GILD and they on my books since Sept. 1914, showing a resonable profit, but obviouly you have to take a losing call sometimes. You can not expect to win them all!!!


  14. I asked a good friend of mine who works for Siemens – if there were any companies or products in his industry which really impressed him or he was 'afraid of' from a competitors standpoint.  He mentioned SPLUNK – without hesitation – says they are doing some "great things with AI".  I have no practical experience or expertise with AI companies – but does anyone have an investing opinion on them???


  15. Phil, looking for some general steer here.

    I have not been working in the previous 18 months so really enjoyed spending quite a lot of my time trading, based on a great advice from yourself, Yodi and my others on this site – thanks a lot! This is going to change from next week as I agreed to work on a major project for a year (which will be about trying to do something about climate change!). 

    I'd therefore have a lot less time to look at the market. I'd certainly not be able to do futures trades but probably can do the options as long as I do not need to spend more than 2-3 hours/week managing those positions.

    I am therefore looking for advice on the best approach to take for 2020. I have multiple PSW-style positions now, some in a good place some less so. But, if we assume that: a) I start from scratch, b) have about $100k and c) would like to achieve perhaps 10-15% a year without spending too much time both in terms of setting things up (i.e. opening positions over the many months would not be ideal) and in terms of managing it throughout the year. What would your advice be? Something similar to the Dividend Portfolio?


  16. Jasu hope you noticed GILD is over 65 already, So throwing a dollar away is no option for me at this point!


  17. QUIK – Up another 12% today.  Almost back to broke. 8-)


  18. Yodi, 

    On GILD: 9 days to expiry! Actually I would not mind it being put to me, or NOT…..Selling premium is the name of the game! Phil has trained us well on this site! Keep them coming Yodi, much appreciated. Thank you.


  19. QUIK now up 24% today.  I'm finally profitable !.   Selling some.


  20. GILD/Jasu – I like them well enough.  $65 is $83Bn and they lost $1.2Bn last Q so lucky to hit $5Bn this year but next year should be more like $8Bn and I think $60 is a very solid floor for them.  Not sure what the question is on the short $65 puts, which are now 0.90 so you are up 85% with 11 days to go.  If you don't mind being assigned, there's no reason not to go for the 0.90 and you are very unlikely to be assigned if GILD is not a bit lower than $65 so you can just set a stop there at maybe $1.50 and THEN you can sell the 2022 $60 or $65 puts AFTER it heads lower because it either heads lower and gives you a better sales price on the new puts OR your current puts expire worthless and you make 0.90 more and THEN you sell more puts. 

    And, as noted in conversation with Yodi, GILD pays a $2.52 dividend and, if assigned at $65 (net $56.35 for you), you could then sell the 2022 $60 calls for $11 and drop your net to $45.35 and that makes the dividend about 6% while you wait and you can sell $55 puts for $5.50 (at least) to drop your net to $39.85/47.43 so, if you don't mind owning 2x GILD for net $47.43 (27% off the current price) then there's no reason at all to buy back short puts paying 0.90 premium for a month (annualized $11/yr or 20% of GILD), is there?

    SPLK/Jeff – $24Bn valuation at $152.50 on $2Bn in sales burning $250M/yr is manageable as they have $1.7Bn in the bank but that's $1Bn less than they started the year with so we have to hope they are not wasting that money!  

    Year End 31st Jan 2014 2015 2016 2017 2018 2019 TTM 2020E 2021E CAGR / Avg
    Total Revenue
    $m

    303 451 668 944 1,309 1,803 2,190 2,350 2,882 42.9%
    Operating Profit
    $m

    -78.3 -216 -288 -336 -185 -251 -255      
    Net Profit
    $m

    -79.0 -217 -279 -347 -190 -276 -312 295 380  
    EPS Reported
    $

    -0.752 -1.81 -2.20 -2.59 -1.36 -1.89 -2.08      
    EPS Normalised
    $

    -0.734 -1.81 -2.19 -2.59 -1.36 -1.80 -2.01 1.88 2.35  
    EPS Growth
    %

                    +24.6  
    PE Ratio
    x

                  80.7 64.8  
    PEG
     

                  3.28 2.26  
     

    As you can see, they are not going to make much money this year or next year so a very long way from justifying $24Bn so I'd watch and wait for now as they are likely to need more funding so hopefully a nice pullback gives you a chance to get in closer to $100.


  21. Phil, Yodi;

    Thanks on GILD. Just want my cake and eat it TOOO! Nothing wrong with that, right?


  22. From scratch/Alter – I'd go with the Butterfly Portfolio as we rarely touch it outside of the monthly adjustments and it's self-hedging and returns a pretty steady 30-40% in anything but a massive sell-off.  

    This portfolio was at $193,306 in our 11/27 review and now $216,594 so up $23,288 in 6 weeks I would think is good enough for a portfolio we touch once a month.  Of course, with $100K, I'd go 50% of what we have here – especially AAPL, DIS and WHR – all expensive positions.

    QUIK/Albo – Very nice, finally.

    You're welcome, Jasu, nothing wrong with that.  As you said, we're in the premium selling business.  A landlord doesn't kick out his tenant just because there's only 2 weeks left on the contract, right? 


  23. Phil/Splunk-

    Thanks for the analysis — I was kind thinking around $100 as well.  Maybe I'll sell some puts on any kind of decent pullback just to keep an eye on them (guess where I learned that strategy…)

    Welcome to Florida (full-time) – I'm in Broward just over the Boca-line – down from NY 25 years ago.


  24. Welcome back Phil and thanks for sharing your exotic travels and plans .. fun to follow along!

     

    I’ve waited until 2020 to sell my 20 AAPL $140calls to defer my cap gains, but I’m now ready to do that. But as AAPL has surged since your last suggestion I'm wondering if the advice for consolidation will have changed (without creating naked shorts):

     

    LONG     20   ’21 $140 calls, now $157 ($318k)

    SHORT   10   March $220calls   now -$76

    SHORT   10  June  $270 calls   now -$38

     

    30   ‘21  $200/240 bcs

     

    LONG     15 ’22  $240calls ($53.5) now $80

    SHORT  15 June’20 $270 calls.  ($17.6) now $38

     

    After cashing in the $140 calls you suggested buying 40  ’22 $220 calls (then $68). 

    I could then roll the 10 March $220s to 20 June $270s and could sell 10 ’22 $280 calls ($38) for a bcs.

     

    Would you now buy higher strike long ’22 calls instead of the $220s?

     

    THX!


  25. SPLK/Jeff – You're welcome, I'll be interested to hear how they progress and now I'm going to read up on their tech.  What town are you in?  

    AAPL/Wing – Well, $318,000 you want to pocket for sure but what to do with all the short calls?  The 2021 $200 ($103)/240 ($70) bull call spread is $33 and that's $100K so I'd rather have that than wait a year for $20K more.  I would also take $63,000 for the 15 spreads so you can concentrate on the one position.

    The 2022 $220s are now $93 so up $100,000 on those so I hope you saved more than that in taxes!  wink

    So, if you sell all you are left with just the 10 short March $220s ($79) and the $10 short June $270s ($38.50) so let's say you could make that 30 short June $270s at about the same net price.  The 2022 $310s are $40 so that's your ultimate roll and you just want to have something lower than that so let's say 30 of the 2022 $270s at $60 ($180,000) so if AAPL goes higher and never goes lower, you recover $120,000 of it after pocketing about $500K – that's fine.

    If AAPL goes lower the short calls wipe out and you can re-establish a spread by selling 2022 calls like the $300s for $45 and using that money to roll to the $250s at $70 – which would leave you with 30 $250/300 bull call spreads at up to $150,000 without putting another penny in.  So nothing to worry about on the downside and the upside is protected and flat would be great as the short calls go worthless.  

    Seems like a good way to leave things.


  26. Phil/Florida Town —

    Coconut Creek


  27. Phil, the retail apocalypse hasn't seemed to involve Nordstrom (JWN) yet. Would you consider a play similar to your CMG setup?


  28. Phil I notice you refer to the Butterfly Port. I am always having resered  of entering a new trade when the original trade in respect to DIS goes back as Aug and Sept. and AAPL back to Nov. Stocks have all most all gone higher, so I feel it would not be a good idea to enter such plays at a time like now.
    AAPL was in Nov 260 now nearly 300. I mentioned, I believe SBUX the other day, I bought the stock at 68 now 87 it makes a great difference if you are trading with a base of 68 in comparison to 87. Same with AAPL, WHR OK 140 would be better but 145 possible still OK
    DIS I traded at 130 much too high for me now. So I think Alter's thought of div. stocks possible with Leap option plays even such as NLY would be a better bet.
     Just my way of thinking.


  29. I entered the play just 12/30. Look at the difference.

    ABMD    ABMD200221C180    21-Feb-20    180    -2    CALL    10.33    13.15    -27.30%
    ABMD    ABMD200221P155    21-Feb-20    155    -2    PUT    8.07    6.3    21.93%
    ABMD    ABMD220121C150    21-Jan-22    150    2    CALL    54.7    59.5    8.78%
    ABMD    ABMD220121P145    21-Jan-22    145    -3    PUT    27.2    25.1    7.72%


  30. Phil / HRB – WHat are your thoughts on HRB.  The price is back near the bottom of the range.  Also, it has been in the same range for about 4+ years, would this be a good butterfly candidate?


  31. CC/Jeff – I play poker there!

    JWN/JMD – They were just on a list of best or worst stocks for 2020 – I can't remember which…   Nordstrom is specialized with just 382 stores and 249 of them are Nordstrom Rack (discount), which seems pretty popular.  Profits are going nowhere at about $550M on $16Bn in sales so 3.5% to the bottom line is kind of sad and kind of dangerous if things contract a bit.  You can see how easily they were knocked back to $25 over the summer:

    Still, I don't feel they are too expensive, I think $40 ($6Bn) is about the right price and the rest is just sentiment – one way or the other.  It's not like CMG, where it's clearly ridiculous at $850 but so is TSLA at $360 yet it's at $450 now so, no, I'm not keen on shorting anything and certainly not a solid company trading at 12x earnings like JWN.

    AMZN struggling to get back over $1,900:

    Butterfly/Yodi – I don't think it matters much when we enter the Butterfly plays as they are more about selling the front month than trying to profit on the long plays.  In the case of AAPL, do I like the 2022 $240/2021 $270 bull call spread for net $30?  Sure I do, it's a $30 spread but the $270s ($50) can roll to the 2022 $300s ($46) and then it's a $60 spread 2x covering the short June $260 calls and $240 puts that were sold for $34 so $300 on AAPL is over our zone but we have 3 more halves to try selling $34 worth of puts and calls against our $30 long position and the $30 long position can become a $60 long position that's 100% in the money and the June $260s ($46.50) can be rolled to the 2021 $300s ($32) for $14 and, of course, more put money to offset that.  Sounds good to me!

    Good point though, this market is pushing these plays hard and fast.

    HRB/Fel – I like HRB as it seems like a pattern that people tend to forget about them and lose interest each year but then, during tax season, everyone remembers HRB is a pretty good business and gets back into the stock and, of course, Q1 and Q2 are their big quarters and Q3 and Q4 (which ends 10/30) generally have losses.  It's like a high-speed cyclical:

    I guess it would be a good Butterfly candidate but it stays down too long so we generally just play it bullish into April.  March earnings are not likely to be exciting but, for the Earnings Portfolio, let's play HRB like this:

    • Sell 5 HRB 2022 $22 puts for $3.50 ($1,750) 
    • Buy 15 HRB July $20 calls for $4.10 ($6,150) 
    • Sell 15 HRB July $24 calls for $1.60 ($2,400) 

    That's net $2,000 on the $6,000 spread so $4,000 of upside potential at just $24 is a nice, conservative way to make 200% – though you have to wait a while on the put side.  


  32. X / Phil — On Dec 9 2019, I sold the X March $14 calls for $1.64, like in the Butterfly portfolio.

    On Dec 27 2019, they were at $0.33 with X at $11.14 and I bought them back.

    X is now at $10.79

    Would it be considered unwise to now sell the March $12 calls, with the cover and margin that is sitting there?


  33. Wow, I can't believe we finished the day in the green – crazy!

    X/Vidt – X was up on China fever and now it's down on economic worries and they cut their dividend, which forced a lot of funds to dump them.  I would not have wasted money buying them back – especially as I don't want to sell the $12s so cheaply (now 0.58).  You could have collected 0.33 more by just waiting and for 0.25 more you want to risk missing out on a rally back up?  That doesn't make sense.  

    I'd rather wait and see how earnings go at the end of the month.  They've already cut guidance and warned so, unless it's worse than that – I don't see them going lower and, as I said, non-dividend-seeking funds may consider them a nice value play down here.

    PITTSBURGH, Dec. 19, 2019 (GLOBE NEWSWIRE) — United States Steel Corporation (X) today provided fourth quarter and full year 2019 guidance and key financial and operational updates that support successful execution of its world-competitive, “best of both” strategy. 

    Fourth quarter 2019 adjusted EBITDA is expected to be approximately ($25) million, which excludes approximately $225 million of estimated restructuring and other charges.  While steel markets in North America are recovering, the Europe and Tubular segments remain weak.  The Company expects fourth quarter 2019 adjusted diluted loss per share to be approximately ($1.15).

    “While the current realities of the markets we serve are having a significant impact on our short-term results, we are taking swift action to align our operational footprint and financial strategy with our customers’ future to ensure we continue executing our ‘best of both’ integrated and mini-mill technology strategy,” commented President and Chief Executive Officer David B. Burritt.  “Fourth quarter expected results confirm the need to change to make the business more resistant to factors outside of our control.  While the decisions being made are difficult, we believe they allow us to drive increased stockholder value as we move towards our future faster with a more capital efficient footprint. 



    We understand the impact today’s announcement to indefinitely idle Great Lakes Works has on many of our stakeholders, and we are acting now to reposition U. S. Steel around a footprint differentiated based on cost or capability.” 

    Burritt continued, “2020 will be an important year for strategy execution and we are taking decisive action to make changes to our capital deployment strategy that help us get to where we are going faster.  With the reduced capital spending forecast and quarterly dividend adjustment announced today, we are preserving $100 million of cash in 2020 to support the continued execution of our ‘best of both’ strategy.”

    Updates to 2020 Capital Spending Forecast:

    • Capital Spending Flexibility – The Company is adjusting its 2020 capital spending forecast from $950 million to $875 million, a $75 million adjustment to the previously disclosed 2020 capital spending forecast, and reprioritizing spending across the enterprise to enable focus on previously announced strategic priorities. 

    Updates on Progress Towards Capital and Operational Cash Improvements: 

    • 2022 Capital and Operational Cash Improvement Target – As disclosed on the October 1, 2019 call regarding the investment in Big River Steel, the Company has set a goal of achieving as much as $1 billion in capital and operational cash improvements by 2022 through activities such as rescoping asset revitalization investments, reducing fixed costs and enhancing its ability to pursue opportunities to extract incremental value from excess iron ore pellets.  The Company has reduced the Asset Revitalization program by $200 – 250 million to focus the remaining program around enhancements to the Gary hot strip mill capability advantages.



      Additionally, the Company has already completed actions (primarily labor reductions) to date that will generate annualized cost benefits of approximately $75 million in 2020 of the stated $200 million run rate fixed cost reduction by the end of 2021.  The Company continues to assess options to create incremental value, primarily through its excess iron ore pellets and has expanded the scope to include real estate opportunities.

    Updates to Capital Allocation Strategy: 

    • Dividend Policy and Stock Repurchase Program Change – The Board of Directors has approved an adjustment of the quarterly dividend to $0.01/share, from $0.05/share, to support successful execution of the Company’s world-competitive, “best of both” strategy.  This change in the dividend becomes effective as dividends are declared in 2020 and is expected to deliver approximately $25 million of annual cash savings beginning in 2020.  In addition, as communicated on the third quarter earnings call, the Company has stopped repurchases under its stock repurchase program and now has decided to formally terminate the program.  Currently, the Company believes that executing its world-competitive, “best of both” strategy is a better use of capital than maintaining the current dividend policy or continuing with stock repurchases.  These components of the capital allocation strategy remain important to the Company’s capital allocation framework and will continue to be assessed regularly by the Board of Directors.

    “Market dynamics reinforce the need to accelerate the world-competitive, ‘best of both’ company, ultimately centering our North American Flat-rolled footprint around three world-class assets (Big River Steel, Mon Valley Works, and Gary Works),” commented Burritt.  “To get to the future faster, we remain focused on the successful execution of our strategic projects.  Acquiring the remaining stake in Big River Steel continues to be our top strategic priority.  We are monitoring the Phase II-A expansion of Big River and are encouraged by the progress.  The EAF at Tubular remains on-budget and on-track to be operational in the second half of 2020.  We remain committed to the Endless Casting and Rolling investment at Mon Valley and its timeline of first coil in 2022 and will continue to be flexible and execute investments at the Gary hot strip mill and Dynamo line at U. S. Steel Europe as market conditions warrant.”

    Full Year Guidance Details

    The Company expects full year 2019 adjusted EBITDA to be approximately $682 million, which excludes approximately $285 million of estimated restructuring and other charges and approximately $47 million of estimated impacts from the December 24, 2018 fire at our Clairton coke making facility.  The Company expects full year 2019 adjusted diluted loss per share to be approximately ($0.42).  The projected net loss and diluted net loss per share for the fourth quarter and full year 2019 is preliminary and is subject to the Company’s ongoing assessment of the realizability of its deferred tax assets.  The net deferred tax asset as of September 30, 2019 was $452 million.  If the Company determines that a valuation allowance is required, a non-cash charge will be recorded in the fourth quarter of 2019.

    Fourth Quarter Adjusted EBITDA Commentary

    While flat-rolled steel market conditions are improving, the Company’s expected fourth quarter Flat-rolled segment results are negatively impacted by the approximately 60% of shipments impacted by lower steel selling prices in the third quarter and October.  Lower fourth quarter shipments to third party customers, suggested in the previously disclosed annual shipment guidance of 10.7 million tons, are also expected to negatively impact earnings.  The Company also expects the November 27 flood at the Gary Works facility to have a negative impact of approximately $15 million on fourth quarter EBITDA. 

    In Europe, market conditions remain weak.  Average realized prices in Europe have declined as low selling prices flow through monthly and quarterly contracts.  Economic indicators in the region suggest difficult market conditions are likely to continue in 2020.  Based on this assessment, one of the three blast furnaces remains idled and the Company has postponed the Dynamo line investment spending in 2020.

    Commercial headwinds in the Tubular segment are expected to drive lower-than-expected fourth quarter earnings.  Selling prices continue to decline, while substrate costs improved less than expected, primarily due to higher scrap costs.  This is expected to narrow margins and reduce earnings compared to the third quarter.  In addition, seasonal weakness is negatively impacting quarter-over-quarter results and import levels remain high, but the electric arc furnace installation remains on-budget and on-time for 2020. 

    Reconciliation to Projected Adjusted EBITDA Included in Guidance    2019
    Projected net loss attributable to United States Steel Corporation included in guidance $(328)
    Estimated income tax benefit $(156)
    Estimated net interest and other financial costs $215
    Estimated depreciation, depletion and amortization $619
    Projected EBITDA included in guidance $350
    Estimated full year adjustments $332
    Projected adjusted EBITDA included in guidance $682

    The market cap for X is $1.8Bn at $10.80 but keep in mind they are not actually making any money – it's all accounting nonsense and they are down from $1Bn in cash last year to $476M and it's not like people are lining up to buy used steel mills so they may have to dilute to raise cash but, even if they do – what's the point?

    Our Butterfly position wasn't a big, bullish bet on X but more of a  2-year $14,000 long position on 11/26 that was able to sell 4 (of 26) months for $9,200 (net $4,800).  If we finish around $11 in mid-March, we owe $2,000 back to the short puts (net $6,800) and THEN we will sell 30 July $11 calls (now $1.60) and 30 July $10 puts (now $1.25) for $8,550 against our $6,800 position.  

    So we don't care if X is up or down as long as it doesn't go either way too fast because the premium we're able to sell is roughly 8 x $6,000 ($48,000) over 2 years and, even if we collect 1/2 of it, we're up $10,000 and whatever value there is in the long spread is just a bonus.  

    Above all else, these are PATIENCE plays.  You sell premium and you wait, PATIENTLY, for the premium to die out – and then you sell more premium and wait, PATIENTLY for that to die out.  Other than that – you shouldn't try to overthink things! 




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