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Trade of the Year Tuesday – Who Will Survive the Fall?

Tesla nears $500 billion! Higher than combined m-cap of Ford, BMW, 7 other  automakersThis is a solemn duty.  

We have not had a miss in a decade of our Trade of the Year picks and I'd hate to break that streak.  I am currently considering that my trade of the year should be NO TRADE as I really don't trust the markets and I'd rather short Tesla (TSLA), which is often a suicide run but TSLA never stops going up and $650 is $608Bn in market cap - more than EVERY other car company COMBINED – so that stock has left logic and reason behind long, long ago

And yes, just one week ago, they made this chart and TSLA was 20% lower than it is now.  Since then it's gained a Volkswagen in value and that's clearly ridiculous but, when things are clearly ridiculous, what is to stop them from getting more so?  

So, TSLA is too dangerous to short but, if I were to short it, I would buy the Jan 2023 $800 puts for $350 and I would sell the Jan 2022 $800 puts for $295, which would put me in the calendar spread for net $55 and I would pay for 10 of those $55,000 by selling 3 Jan 2022 $750 calls for $152.50 ($45,750) so we'd be in the spread for net $9,250 and our hopes there are that the short calls expire worthless and the short puts either expire worthless or can be rolled lower and whatever value is left on the long puts greater than $9,250 is our profit.  We'll see how that goes next year.

In last year's Trade of the Year Report, we ended up picking Barrick Gold (GOLD) at $16.50 with a net $750 spread that would pay $12,000 if all went well for a $11,250 (1,500%) profit if GOLD were over $17 in Jan, 2022 (one of our famous "Stupid Options Tricks" we teach our Members.  GOLD rocketed up to $30 in the summer and we took an early exit and now it's back to $23.95 and I'm almost ready to jump back in:  

I don't see the Dollar getting too much stronger so Gold and GOLD should continue to do well in 2021 and the easiest way to play is to promise to buy GOLD at $16.50 again, which seems like a no-brainer, right?  We do this by selling 5 of the 2023 $20 puts for $3.50 ($1,750) and that obligates us to buy 500 shares of GOLD for $20 but, since we get $3.50 per share in our pockets for making that promise, our net would be $16.50.   

That's how we can make 15% of the stock's value just for promising to own it at a 31% discount to the current price.  Nice trick!  GOLD has been volatile enough that we could pair the short puts with a 2023 $20 ($7.20)/$25 ($5.20) bull call spread at net $2 and we could buy 10 of those for $2,000 which would net us into the entire spread for net $250 and the spread will pay back $5,000 for a $4,750 (1,900%) profit if GOLD is over $25 in Jan, 2023.  

Of course, we lose our big discount and we'd net into 500 shares of GOLD at $20 plus the $250 we're investing in the spread so $20.25 would be our net cost if it all goes wrong, still $3.70 (15.5%) less than the current price and only 500 shares for $10,250.  That is not a big risk and the reward is great so it's an excellent trade – could easily be the Trade of the Year again.  

We are not shy about revisiting the well in our Trades of the Year.  Apple (AAPL) was our Trade of the Year 3 years in a row and, each time, it hit its goals.  The Trade of the Year is the trade we feel is most likely to return at least 300% over 24 months.  Last year, we were strongly considering our 2018 Trade of the Year, IBM (IBM), which had fallen back and we did make the play and it's still in our Money Talk Porfolio:  

2022 21-JAN 140.00 CALL [IBM @ $125.95 $-1.25] -8 11/14/2019 (410) $-9,200 $11.50 $-4.93 $-5.50     $6.58 $-0.43 $3,940 42.8% $-5,260
2022 21-JAN 135.00 PUT [IBM @ $125.95 $-1.25] -4 11/14/2019 (410) $-8,460 $21.15 $0.38     $21.53 $-0.98 $-150 -1.8% $-8,610
2022 21-JAN 110.00 CALL [IBM @ $125.95 $-1.25] 8 3/12/2020 (410) $9,600 $12.00 $8.90     $20.90 $-0.10 $7,120 74.2% $16,720

Another huge winner as we netted in for a credit of $8,060 and now it's worth net $2,850 so the overall gain is $10,910 at the moment but the spread has the potential of being 8(00) x $30 for $24,000, which would be a gain of $32,060 so we still have $21,150 (194%) left to gain on this spread and I do love IBM long-term – so it's a keeper.  

Sunpower (SPWR) was another runner-up last year because there was uncertainty regarding their spin-off but there turned out to be no reason to worry about them or CBS, which became VIAC and also went on to do very well for us.  Reiterating others that were under consideration, at the time, I said: 

Teva (TEVA) is a good value but too uncertain, Oil Service ETF (OIH) also a good value but also too choppy with a dim demand outlook and the uncertainty of the Aramco IPO (will they flood the market with oil trying to make numbers?).  GME and BBY already got away from our lows but Tanger Factory Outlet (SKT) is still unloved and we think they are still stupidly cheap at $15.88 but a bit too Fed dependent to be the Stock of the Year (we don't want something where factors out of their control can hurt their business).   L Brands (LB) is still stupidly cheap but the Biotech ETF (LABU) already popped 40% while we've been considering it.  

Mittal (MT) we would like to see a bit cheaper or at least break over $17.50 finally, Travelers (TRV) is the best bargain on the Dow and a possible play, Northern Dynasty (NAK) is a penny stock but, at 0.57, I'd buy 10,000 shares for $5,700 and forget about it for 5 years – just in case they ever get their permit (I'd also sell half if they hit $1.14 so I'd have 5,000 shares at net $0!).  

Frontier (FTR) is down to 0.75 so do we buy them before or after restructuring?  I'd say 1,000 shares now ($750) and plan to spend $4,250 once they announce a new CEO and get a reaction.  

Barrick Gold (GOLD) is reasonable again at $16.44 and at $15 I'd certainly want to buy them and we can do that with options so very tempting…  Cleveland Cliffs (CLF) is being hurt by the China Trade Issues but, as a North American Iron Ore Manufacturer, they have certain advantages and should really pop if we ever do get a deal.  Capril Holdings (CPRI) already took off on us, IMax (IMAX) is stupidly cheap at $21.25 but hard to call a Stock of the Year as they are a slave to Hollywood's releases to make their share of the money.

Lockheed Martin (LMT) is our stock of the Decade for the 2020s but that's way higher now than when we picked it.  Annaly (NLY) is too cheap at $9.12 and pays a nice dividend but options aren't exciting enough for a Stock of the Year.   Walgreens (WBA) was our first choice for Stock of the Year but someone else liked them so much they offered to buy the whole company and they already popped 25%. 

Oops, FTR did NOT go well at all – they ended up restructuring.  To be fair, they did jump 50% into December but, after that, spiraled into darkness, never to return.  IMAX got clobbered and is now $14.46 and WBA was once again my first choice for Stock of the Year this year but they already popped quite a lot off the lows.  

Likewise SKT also had a big pop and they were my second choice for Trade of the Year:

AT&T (T) was in the running but also took off.  Intel (INTC) is still in the running at $50 as it seems like such a sure thing not to be any lower (like GOLD) and that's all it takes for us to construct a 300% play.  Cisco (CSCO) is also stupidly cheap and I like them for the same reasons (Internet of Things, 5G, Robots) but INTC is as ridiculously cheap as TSLA is ridiculously expensive.  Also stupidly cheap is IBM (IBM), who are still near where they were in November, when I made this comment in our Live Member Chat Room:

IBM/Ravi – From scratch I would go with:

  • Sell 5 IBM 2023 $100 puts for $20 ($10,000)
  • Buy 15 IBM 2023 $110 calls for $20 ($30,000)
  • Sell 15 IBM 2023 $135 calls for $10 ($15,000) 
  • Sell 5 IBM Jan $120 calls for $4 ($2,000) 

That's net $3,000 on the $37,500 spread so that's $34,500 (1,150%) upside potential at $135, which is not very far away.  The short calls can be rolled and I don't think IBM will explode and, of course, any time IBM doesn't gain a few % in a quarter, you lower your basis. 

Also nice that we're starting out $10,500 in the money so it's another Trade of the Year contender with that kind of leverage!

That's still playable if you like making 1,150% in two years.   Chimera (CIM) is a REIT and it's hard to pick REITs but I love them at $10.75 paying a $1.20 (11.03%) dividend and you can buy 1,000 shares for $10,750 and sell 10 of the 2023 $10 puts for $3.20 ($3,200) which is promising to buy 1,000 more for net $6.80 and you can sell 10 of the 2023 $10 calls for $2.20 ($2,200) so you've effectively spent net $5,350 on the $10,000 potential spread and all CIM has to do is hold $10 and you make $4,650 plus $2,400 in dividends = $7,050 (131%), which is nice, but not good enough to be our Stock of the Year, unfortunately.  

Last year, we closed out our previous Money Talk Portfolio on September 18th, after gaining 148.1% in two years.  That's why we ended up adding a few of our Stock of the Year contenders to the new MTP, as we were looking for all new trade ideas last November.  This year, we have to decide which positions we are keeping and which we'll be cashing before we decide what the Trade of the Year will be.

Keep in mind we only trade the Money Talk Portfolio when I'm on BNN (quarterly) so it's the very definition of a low-touch portfolio.  That also affects our trading decisions as we don't want to play stocks we're not VERY comfortable just leaving alone for 2-4 months at a time.  At the end of our first full year with the new MTP, here's how we stand:

  • F – Selling a short put is the basis for most of our entries.  As we mentioned above, it's a way to get paid to promise to buy stocks at a discount (see "How to Buy Stocks for a 15-20% Discount").  In this case we were paid $2,700 for promising to buy Ford at $5 but now the stock is at $9.25 and there's only $470 left on the short put and we have to wait a whole year to collect it.  We can do better so we'll cash this one out.
  • GOLD – Similar situation.   We have no fear of being assigned GOLD at $17 but it's an opportunity cost and we've already collected 71.6% of our max possible – so we'll cash it out.
  • IBM – As noted above, it's a keeper with $21,150 left to gain.
  • M – I'm very angry they took off, they are a sentimental favorite.  It's a $15,000 spread at net $9,150 so 64% more to gain ($5,850) is worth keeping. 

  • PFE – This was a new pick from the last time I was on the show.  Already doing well but it's a $7,000 spread at net $1,750 so $5,250 (300%) left to gain puts it almost at Trade of the Year territory.  Almost.  
  • SKT – Another one I love but we have to take advantage of this run and sell 10 of the 2023 $10 calls for $3.50 ($3,500) to drop our net down to $2,675 with a potential gain of $7,325 (273%) if SKT simply holds $10 and hopefully they will restart the dividends too for bonus money.  As the net is currently $5,532, there is actually only $4,468 left to gain.  

  • SPWR – It's a $10,000 spread at net $7,045 so $2,955 (42%) left to gain.  Since we are 200% in the money, there's no reason to kill this trade as we don't really have anything better to do with that $7,045 than make the 42% over the next 12 months, do we?  
  • VIAC – This is a $14,000 spread also almost 200% in the money but, at net $12,690, there's only about 10% left to gain and we can certainly do better than that with $12,690 in CASH!!!, so we're going to kill this one, sadly.  

What a fantastic group of picks!  3 cash outs will leave us with just 5 positions but those 5 positions are on track to gain another $39,673 so it's a very good base and nicely diversified with Tech, Retail, Pharma, REIT and Solar.  

I'd rather not pick another Tech as SWPR is technically tech but I have no choice but to recognize Intel (INTC) as the trade most likely to return 300% over the next two years AND be the least likely to take a loss.  Those two factors, low risk and high reward, make INTC our 2021 Trade of the Year.  After bottoming out at $45 on delays in their new chip sets, INTC has already recovered to $50 but that's only $205Bn and INTC makes $21Bn a year in Net Income for a P/E of less than 10.  

The recent volatility has left the option premiums elevated so we can take advantage of that with the following trade idea for the Money Talk Portfolio:

  • Sell 10 INTC 2023 $45 puts for $7.30 ($7,300)
  • Buy 25 INTC 2023 $45 calls for $10.75 ($26,875)
  • Sell 25 INTC 2023 $55 calls for $7.00 ($17,500) 

That's net $2,075 on the $25,000 spread with $22,925 (1,105%) of upside potential at just $55.  Ordinary margin on the short puts should be $3,059 but, even with IRA or 401K full margin, this is a very nice way to make $22,925 in two years as the downside risk on INTC is very limited.  Their main rival, AMD, has just $7Bn in sales vs $72Bn for INTC, they are 1/10th the size and no significant threat.  

With another $22,925 of potential upside, we have over $60,000 of potential gains in the MTP and that means we can coast into the new year without fear of missing out (FOMO) if the rally continues and, if it doesn't, we have massive amounts of cash to deploy and almost all of our margin buying power available as well.  

Looking forward to 2021!  

***

Watch Phil on BNN MoneyTalk here:

 


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  1. GM PSW! 


  2. Good Morning.


  3. Japan’s economy grows 22.9% in 3Q, bouncing back from COVID





  4. The vaccine passport idea is a revival of the old WHO yellow booklet, sounds like. I still have mine from when I was the Peace Corps in the 70s, full of exotic vaccine confirmations. The typhoid one didn't work, but they said it was only 50% effective.



  5. US regulators post positive review of Pfizer vaccine data


  6. Phil/NAK,

    at 0.35….with trump moving out (hopefully) it this dead? or good to get some and forget for few years

    regards


  7. Phil/TOTY – No trade of the year yet, although you have given a good option with TSLA above. Is this correct?


  8. Trade of the Year/Ravi – I'm pretty sure we picked INTC above.


  9. Phil/TOTY – INTC it is, missed the text above the trade and it looked very similar to what we recently added with a 50$ put. Thanks again!


  10. It is similar.   The Trade of the Year doesn't have to be one we've never done before – just the one I am most sure of making 300% in the 2 years ahead.  

    I feel comfortable INTC will ride out another correction and be on the comeback trail over the next 24 months – more so than any other stock.  


  11. Phil// What is your take on QS?  They are the battery suppliers for VW and their data seems to be good.  Thanks


  12. QS/Rookie – There's no financial data on them, I get the feeling they reverse-mergered into that ticker via SPEC.  No idea if they are worth anything or not.  It's very possible they are simply showing off a portfolio of products they have optioned into as I can't see how they've had time to develop anything on their own.  

    It's very likely just a company with a checkbook telling you what cool projects they might be about to invest in if you give them more money.  They might end up picking a winner – they might crap out.  You are being asked to pay for the winner, regardless.


  13. Phil//  Thanks.


  14. I am trying to get the fill on INTC.  I guess once Phil announced the Trade of the year, the call option prices have shot up while the put options have dropped.  Wanted to know if anyone got their fill.

    Thanks.




  15. China Set to Bail Out Iraq with Multibillion-Dollar Oil Deal


  16. Fills/Rookie – Came in at the open but not since.  Keep in mind, as long as the net is the same you're still good.


  17. rookie/ I went with the47.50/57.50 bcs @3.75. Being such a large company I think the options should trade 

    easily and there will be plenty of time for adjustments.


  18. Phil, what are we doing with HRB these days?  I've hung onto the stock through the virus downturn as I don't mind the 6% dividend, but with a surprise to the downside when I expected that people were still going to have to get their taxes done by July.   I can double down to reduce my net to $18.50 (I am at net $20.63 after dividends this year) and then roll my short Jan 21 $18 calls to Jan 23 $17 calls to reduce my net to $15.25.  Or am I just better off selling the Jan 22 $15 puts for $2.45?  I only have 600 shares so only missing out on $625 if I don't double down.  I can't see that they gave any guidance with earnings, but I also can't see them going anywhere for a long time to come.  Thanks.


  19. Phil, Snow   There is all ready a company that does screening that is moving into other areas of the verification business.  Its Clear, the same company that does the airport screening.  Privately owned it appears.


  20. HRB/Rperi – I think we gave up on them.  They always pick back up into April but then drop back to the bottom of the channel so we play at the bottom and wait.  This is the middle, not sure I'd jump on anything too soon.

    Clear/Stock – Good operation.  I use them at airports.  


  21. https://www.cnbc.com/video/2020/05/15/.html

    Clear CEO interview in Health Pass


  22. Clear/STock. Hm interesting, thanks. In Korea, one has to check in almost everywhere – bars, restaurants of course, big-box retailers like Home+ – usually with a phone app, but sometimes with a physical logbook. Right now, though, Korea's having a spike so they're at semi-shutdown protocol, level 2.5 I think, maybe 3.

    Anyway, Clear looks from their site focused on airports and travelers, but if they can expand to other places that would be worthwhile, and I assume they can. We have a new phone app here in California for tracking exposure to diagnosed Covid people, uses bluetooth….the usual thing. My son-in-law's company had something to do with it (he's a virologist), United Therapeutics.


  23. Phil / AT&T – Breaking 30 – I have not covered but am looking at Mar 31 calls at 1.1…


  24. T remember in Jan 20 the stock was 39.55!!!!!!


  25. Clear/Snow – Biometric tracking will allow for better contact tracing which is key for containing outbreaks.  

    T/Batman – They are only just now breaking out.  I'd give them a chance.  

    CHL still cheap:

    • Buy 500 shares of CHL for $29.32 ($14,660) 
    • Sell 5 CHL 2023 $30 calls for $3.60 ($1,800) 
    • Sell 5 CHL 2023 $25 puts for $3.80 ($1,900) 

    That's net $10,960 and if you are called away at $30 that's $15,000 for a $4,040 (36.8%) gain plus they pay $1.97 ($985) for a bonus 9%/yr while you wait.  


  26. TRIL – selling some January 15Ps for 2.90 or better.


  27. I am also DD on TRIL stock and rolling the Feb 15Cs out to May 20Cs for a net 5c debit.  This one is going to run.


  28. So, BMYs TYK2 is gangbusters for those with plaque psoriasis, and when the data come out, should also do very well with atopic derm.  Regeneron's Dupi….an injectable, will be toast.  I also like BMY as a long term play FWIW. I am currently in the Jan23 55/65 BCS, w/ a STO Jan23 50 P for net credit of 1.34!


  29. Hey Pharm.  What's your take on vaccines and timing for ending the nightmare?


  30. Late summer '21.  It is my hope that the kids can go back to school normally next year.


  31. Phil / AT&T – ( YODI). Thanks for holding me back on this one…..  They were high last year, but they were goosed up by ValueAct taking a big position In them…. I was hoping they could get them to sell some assets but they were unsuccessful .    Valueact sold a large portion of their position this year…..   I'm a little concerned at the management shakeup at HBO / TimeWarner, but really the key is can they grow the HBO / Warner Franchise and find synergies that will impact mobile phone churn….   I think Cable is going to die off…..     I"m holding up for now…… on covering….  see what any retrace looks like after breaching 30 today.

    I don't see any more resistance until 32 ish if they hold 30…  Do you?


  32. Patience is the word here


  33. YODI – LOL…..  patience….  my Achilles heel 



  34. "Common sense is not a gift, it is a punishment. Because you have to deal with everyone who doesn't have it"…..

     

    Tell me about it. :)