A LOT is going on!
So much so that, once again (or as usual, I guess I should now say) Basho (AGI) jumped in and wrote a whole morning report while we were researching this morning. He is just like me – I don’t know what I want to write about until I read the news and then something jumps out at me that I feel is worth discussing and I am COMPELLED to put that down on paper. Basho has the same drive so, when we start discussing the markets – he can’t help himself once he thinks there’s a good report to write.
🥷 “The morning report was satisfying the way solving a puzzle is satisfying.”
That’s what he just said to me about putting out the report and I respect that – it’s the sort of birth process all writers go through getting an idea to become full-formed on paper. As I said last week, if I thought I could do a better job – I would – but it’s a waste of my time. I’m more like an editor in this context – a touch-up here and there but it’s Basho’s work, not mine…
Our process is we read the news and we discuss various issues and our take on them and we argue sometimes about what matters and what doesn’t until, finally, there is a report. Last week, Basho wrote: “Monday Market Mayhem – Oil at $98 Again and Trump Goes Shopping in Beijing” and he gave us a few stock picks – let’s take a look at those before we jump to today’s report:
“1. Constellation Energy (CEG) — Monday before open — BEAT, stock UP – Confidence: High“
Officially for the LTP:
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- Buy 5 CEG 2028 $250 calls for $107 ($53,500)
- Sell 5 CEG 2028 $300 calls for $85 ($42,500)
- Sell 5 CEG June $340 calls for $9 ($4,500)
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That is net $6,500 on the $25,000 spread with $18,500 (284%) upside potential if CEG holds $300 and does not hit $340 by June.
NOT a winner on the longs but that’s why we started small and fully covered in June – I (not Basho) EXPECTED a sell-off as they were still a bit expensive and we are now very HAPPY to double down on this one with conviction. Earnings were actually good, guidance was not thrilling and they just paid their 0.426 quarterly dividend, which dropped the stock a bit more so – good for a new trade!
The $250 calls are $84, the $300 calls are $64 and that’s net $20 ($10,000) and the short June $340 calls are $1.50 ($750) so net $9,250 is UP $2,250 (34.6%) for the week and we will wash, rinse and repeat this until the cows come home as a great income play.
Is this a win for Basho? Not really. He had a good idea but the fine-point timing was a little off because the PE of CEG was 23 on Monday at $300 so I called an audible and we did a short that took advantage of the silly options premium. My play had a higher statistical chance of success than just being bullish so this will be a learning experience for Basho (and a win for the LTP).
Actually, I’m sorry, that’s not fair. He was confident they would BEAT and they did – very nicely. The real lesson is that beating isn’t the whole story when betting on a stock but that WAS NOT his assignment – he was just looking for clear winners based on the data. The lesson is for us – there’s more than just whether a company beats or not in an earnings report. We played against all the people who’s algorithms also told them CEG would beat and priced the 13% out of the money June calls at $9 – we were just Being the House!
2. Cisco Systems (CSCO) — Wednesday after close — BEAT, stock UP, guidance is the whole game – Confidence: High
IN PROGRESS
