9.3 C
New York
Monday, March 4, 2024
Home Blog

Top Trade Alert – Feb 7 2024 – Barrick Gold (GOLD)

0

Dollar back at 104 from 104.5 yesterday so that’s helping to boost things.

I still think 5,000 isn’t going to break but we hit 4,999.25 on the futures just now so we’ll see.

Oil $73.50 again – too scary to short and EIA in 30 mins. /NGG failing $1.99 as Biden’s hold on new exports traps /NG in the US (glut).

Gold blasting back to $2,060, Silver $22.50, Copper $3.76 yet GOLD is back at $15.

Finviz Chart

Finviz Chart

Earnings are on the 14th and GLD (Gold ETF) was down at $150 last year in Q4 and this year $190 is up $40 (26.66%). Here’s the outlook:

Barrick (GOLD) said FY 2023 gold output fell 2.1% from the prior year to 4.05M oz, below its annual guidance range of 4.2M-4.6M oz and analysts’ average estimate of 4.16M oz, due to equipment issues at its Dominican Republic mine and lower output at two sites in the Nevada Gold Fields project.

Full-year copper production fell 4.7% to 420M lbs, at the low end of guidance for production of 420M-470M lbs and below 433M lbs analyst consensus estimate.

Barrick’s (GOLD) Q4 production edged higher to 1.05M oz of gold and 113M lbs of copper from 1.04M oz of gold and 112M lbs of copper in Q3, but analysts had forecast Q3 gold output of ~1.1M oz.

The company also said it expects Q4 all-in sustaining costs per gold oz will rise 8%-10% while copper’s AISC is seen coming in 2%-4% lower per lb than Q3.

🤓 As for the Q4 forecast, Barrick Gold expects to deliver on its full year guidance of 4.0 to 4.4 million ounces of gold production at an all-in sustaining cost of $970 to $1,020 per ounce3. However, some of the challenges and risks that may affect its Q4 performance are:

Overall, I still like the play as a long-term investment and certainly it’s a great hedge against inflation. A terrible Q3 still dropped $330M to the bottom line so 4 of those would be $1.3Bn and you can buy the whole company for $26Bn so 20x based on a really bad Q but more likely they make $2Bn and it’s 13x and still a great inflation hedge as $2,100 gold would push them below 10x.

We already have plays on GOLD but, as a new trade, I’d go with:

  • Sell 10 GOLD 2026 $17 puts for $3.50 ($3,500)
  • Buy 20 GOLD 2026 $13 calls for $3.80 ($7,600)
  • Sell 20 GOLD 2026 $17 calls for $2.10 ($4,200)

That’s a net $100 credit on the $8,000 spread so there’s $8,100 (8,100%) upside potential at $17 in two years. Worst case is you own 1,000 shares at $17 but if that were the case today – we could sell 2026 $15 calls for $2.80 and $13 puts for $1.45 and that would drop our net to $12.75 and I certainly don’t consider that a bad worst case – and that’s without even rolling the short puts lower!

Top Trade Alert – Jan 24 2024 – JD.com

0

We discussed adding JD and BABA in the Morning Report and, while we’re adding both to the LTP, I think JD is less risky due to their large cash position as well as the fact that their CEO hasn’t pissed off the Communist Party.  So, our Top Trade Alert is: 

 🤓  Here is an investor report on JD.com (JD) based on the information available from my web search results. Please note that this is not a professional investment advice and you should do your own research before making any investment decisions.

The Good

The Bad

The Ugly

Summary

  • JD.com is a leading ecommerce and logistics company in China, with a large and loyal customer base, a diversified revenue stream, and a strong overseas presence.
  • However, JD.com faces multiple challenges, including slowing growth, rising competition, regulatory pressure, pandemic impact, and shareholder discontent.
  • JD.com’s current valuation reflects a pessimistic outlook for its future prospects, but it also offers a potential opportunity for long-term investors who believe in its fundamentals and competitive advantages.
  • Based on a discounted cash flow (DCF) analysis, using a 10% discount rate, a 5% terminal growth rate, and a conservative estimate of its free cash flow, JD.com’s fair value per share is about $35, implying a 50% upside from its current price of $23.22 as of Jan 24, 2024. This is a rough estimate and should not be taken as a precise target price.

I agree with Phil’s comment that JD.com’s valuation is stupidly low, as it trades at a significant discount to its peers and its intrinsic value. The company has a strong balance sheet, with $25 billion in net cash, which gives it a financial cushion and flexibility to weather the storm. The company also has a competitive edge in its logistics network, which covers 99% of China’s population and delivers over 90% of orders within 24 hours. The company’s overseas expansion is also a promising growth driver, as it taps into new markets and customers. I think JD.com is a good candidate to add to your portfolio today, as it offers a compelling risk-reward ratio.

comment image

Similar to BABA, we don’t need them up 50% to make 300%, for the LTP, let’s:

    • Sell 20 JD 2026 25 puts for $6.90 ($13,800)
    • Buy 40 JD 2026 $15 calls for $10.70 ($42,800)
    • Sell 35 JD 2026 $30 calls for $4.70 ($16,450)

I feel more confident with JD as they have all that CASH!!! This is net $12,550 on the $60,000 spread so there’s $47,450 (378%%) upside potential at just $30 and we have the 5 open longs so we can absolutely generate income. The June $30 calls are $1 for 149 days (out of 723) but the $25 calls are $2.30 so, if we can get $2.30 for 10 of the short $30s, that’s $2,300 and maybe 5 sales like that would pretty much pay back our entry fee – if all goes well…

 

Top Trade Alert – Jan 3rd 2024 – Teck Resources

0

I’ve settled on TECK for our copper play in the LTP. Copper is only about 23% of their revenue but it’s 28% of their earnings and they are fairly small ($21Bn) and making $2.8Bn and should really lever up. 37% of Revenue and 40% of profit comes from Steelmaking Coal and then Zinc is most of the rest. They are dumping their Coal Business – a move I’m very happy with:

🤓 Here is an investor report on Teck Resources (TECK) based on the information available from various sources.

The Good

The Bad

The Ugly

Summary

  • Teck Resources is a leading global mining company that produces a diversified portfolio of commodities, such as steelmaking coal, copper, zinc, and energy. The company has delivered solid financial performance and shareholder returns in 2023, driven by the high demand and prices for its products, especially from the Chinese market. The company is also investing in growth projects and innovation to enhance its portfolio and competitiveness, and is committed to ESG excellence and stakeholder engagement.
  • However, Teck Resources also faces significant challenges and uncertainties in its operating environment, such as the COVID-19 pandemic, geopolitical tensions, regulatory changes, labor disputes, and environmental risks. The company is highly dependent on the Chinese market, which could pose risks to its future growth and profitability. The company is also facing increasing competition from its peers and new entrants in the mining sector, especially in the green energy transition. The company is still recovering from the reputational damage and legal consequences of its involvement in the Mount Polley mine disaster in British Columbia, and is involved in a long-running dispute with the government of Canada over the proposed Frontier oil sands project in Alberta.
  • Based on these factors, we estimate the company’s correct valuation to be $45 per share, which implies a price-to-earnings ratio of 11.4, a price-to-book ratio of 1.1, and a dividend yield of 5.6%. This valuation is slightly higher than the current market price of $41.39 per share as of January 2, 20248, reflecting the company’s solid earnings and dividends, but also incorporates the risks and uncertainties that the company faces. We assign a neutral rating to the company, as we believe that the potential upside is balanced by the potential downside.

https://finviz.com/publish/010324/TECKd153909089i.png

😎Shelbot did not pick up on the fact that TECK is selling their coal business to Glencore for $9.7Bn and that’s why they’ve popped since November.

🤓 Here is an analysis of the sale of Teck Resources’ steelmaking coal business to Glencore and steelmakers, and its implications for Teck’s valuation and prospects.

Based on the web search results, Teck Resources has had the following legal settlements so far:

The approximate cost of pending settlements for Teck Resources is unknown, as it depends on the outcome of the ongoing litigation and arbitration cases that the company is involved in. Some of the major cases are:

  • The Mount Polley mine disaster in B.C., which resulted in the release of 24 million cubic meters of tailings into the environment in 2014. Teck owns 22.5% of the mine and is facing investigations and lawsuits from various authorities and stakeholders
  • The Frontier oil sands project in Alberta, which was rejected by the federal cabinet in 2020 due to its environmental and climate impacts. Teck has filed a $1.13 billion claim against the government for breach of contract and expropriation
  • The Simandou iron ore project in Guinea, which is one of the largest and highest-quality untapped iron ore deposits in the world. Teck has accused the government of breaching its mining rights and conspiring with its rival, Beny Steinmetz Group Resources (BSGR), to strip it of its stake in the project. The case is currently pending in an international arbitration tribunal
  •  

These are some of the legal settlements and pending cases that Teck Resources has had or is facing, but there may be others as well. You can find more information about these and other legal issues affecting Teck Resources using the web search tool or the question answering tool. Please note that I am not a legal advisor, and this is not a legal opinion. You should consult a qualified lawyer before making any legal decisions.

Finviz Chart

I think the risks are going to be manageable and, of course, we don’t need TECK to go up to make good money playing it so it should make for a nice income-producing play in the LTP:

    • Sell 20 TECK 2026 $35 puts for $5 ($10,000)
    • Buy 50 TECK 2026 $35 calls for $11.50 ($57,500)
    • Sell 40 TECK 2026 $50 calls for $6.50 ($26,000)
    • Sell 15 TECK March $40 calls for $3 ($4,500)

That’s net $17,000 on the $75,000 spread so we have $58,000 (340%) upside potential but we also have 7 more quarters to collect $4,500 and that’s $31,500, which would turn this play into a net $14,500 credit which means our break-even would be $27.75 on assignment, which is a lovely 31.5% discount to the current price. That’s not our worst-case scenario but barring any major collapses – that our plan.

Also we could sell more short calls if we get worried, we have little danger from a move up given the ratios we’re using. The buying power effect of selling the short puts is just $1,705 in a Portfolio Margin account so this is a very efficient trade. If there is a significant dip, the plan would be to spend $25,000 or less to roll the 2026 $35s down to the $25s, which would widen the spread and make it less risky for us to sell 25-30 short calls to double our quarterly cash intake.

Again, we’d almost prefer it to go lower first but straight up from here will be very nice!

PhilStockWorld Top Trade Review – Second Half of 2023

11
Top Trades

Top Trades77.7% – that was our winning percentage in the first half.

Most of our misses were Sunpower (SPWR) and I still like them for the long-term but they haven’t done much in 2023. The net gain on our Top Trade Alerts in the first half of 2023 was $65,278 as of our July 13th review and we’re well over $100,000 5 months later.

As it is still 2023 and we just went over our Watch List Yesterday, we’re going to start the Top Trade Review with 4 new trade ideas from the stocks we identified in yesterday’s Morning Report:  

CRSP – We like them because, at $5Bn, they still have $1.8Bn in the bank and they only lost $239M this year so it’s like owning a very well-funded research company and giving them 3-4 years to come up with something. The FDA just approved Casgevy therapy for Sickle Cell Disease – legitimizing CRSP’s treatment process down the road.  For the LTP, we are adding: 

    • Sell 5 CRSP 2026 $50 puts at $11.50 ($5,750) 
    • Buy 15 CRSP 2026 $50 calls at $30 ($45,000) 
    • Sell 12 CRSP 2026 $80 calls at $19.50 ($23,400) 
    • Sell 5 CRSP March $70s at $5.75 ($2,875) 

That’s net $12,975 on the $45,000+ spread that’s half in the money to start. The upside potential is $32,025 (246%) and, if we sell about $3,000 per quarter in short calls – that’s another potential $21,000 (161%) while we wait.

IMAX – We always buy them when they are in a down cycle but they could go much lower (see last Fall) so we’re making a small entry for the LTP – happy to DD if they drop back around $12.  They are being hurt by a string of box office failures that have nothing to do with IMax but certainly hit their revenues.  For our LTP:

    • Sell 10 IMAX July $15 puts for $1.60 ($1,600)
    • Buy 20 IMAX July $13 calls for $3.10 ($6,200)
    • Sell 20 IMAX July $17 calls for $1.15 ($2,300) 

That’s net $2,300 on the $8,000 spread and we can make $5,700 (247%) in just 205 days at $17.

RH – They are in the midst of a transition to a lifestyle brand and getting no respect but $300 is $5.5Bn and they made $529M in 2023. They will make much less in 2024 ($165M) but it’s planned expenses as they are aiming to 10x sales this decade. Here’s a chart of WSM’s stock when RH’s current chairman, Gary Friedman was in charge:

For our LTP, we’re adding RH at:

    • Sell 5 RH 2026 $250 puts for $43.50 ($21,750)
    • Buy 15 RH 2026 $260 calls at $110 ($165,000)
    • Sell 15 RH 2026 $300 calls at $92.50 ($138,750) 

That’s net $4,500 on the $60,000 spread so $55,500 (1,233%) upside potential if RH can simply hold $300!

TGT – Is getting no respect at $142, which is $66Bn but that’s only 16.5x $4Bn in projected 2024 profits, so we’re not going to let this one get away from us. TGT sold $110Bn worth of stuff last year vs $611Bn by WMT – so there’s still room for TGT to grow. For our LTP: 

    • Sell 10 TGT 2026 $130 puts for $16.50 ($16,500)
    • Buy 20 TGT 2026 $130 calls for $31 ($62,000)
    • Sell 20 TGT 2026 $160 calls for $18.50 ($37,000) 

That’s net $8,500 on the $60,000 spread that’s $44,000 in the money to start with $51,500 (605%) of upside potential. See – we don’t have to swing for the fences to make massive returns with options.  

So there’s 4 nice trade ideas that use $28,275 in cash plus margin to generate a potential $144,725 (511%) in profits over the next two years – that’s a nice way to finish our picks for the 2nd half of 2023 – now let’s see how we did with our earlier choices (and don’t forget to use the links to check out or reasons for picking the stocks at the time):

Top Trade Alert – July 19, 2023 – Qualcomm (QCOM)

    • Sell 5 QCOM 2025 $100 puts for $8 ($4,000)
    • Buy 10 QCOM 2025 $110 calls for $29 ($29,000)
    • Sell 10 QCOM 2025 $140 calls for $15 ($15,000)

That’s net $10,000 on the $30,000 spread with $20,000 (200%) upside potential and we’re starting out $14,500 in the money – which is certainly nice. This is the proverbial “born on 3rd base” type of trade!

We’re off to a great start and already over our target.  The $100 puts are just $3.10 ($1,550) and the $110 calls are $43 ($43,000) and the $140 calls are $23 ($23,000) so net $18,450 is up $8,450 (84.5%) so far and still $11,550 (62.6%) left to gain.  

Top Trade Alert – July 21, 2023 – Pfizer (PFE)

    • Buy 1,000 shares of PFE for $37.12 ($37,120)
    • Sell 10 PFE Dec 2025 $37.50 puts for $5.25 ($5,250)
    • Sell 10 PFE Dec 2025 $37.50 calls for $5 ($5,000)

That’s net $26,870 on the $37,500 spread so we have $10,630 (39.5%) of upside if PFE is flat or up plus we have 30 months so call it 10 dividends of $410 is another $4,100 (15.2%) and, once PFE is back around $40, we can sell a few short-term calls for income as well. For EXAMPLE, the Sept $37.50 calls are $1 so selling 5 of those would bring in $500 using just 56 of our 882 days. Do that 10 times and that’s another $5,000 coming in.

The short-call selling would have helped but we won’t count it.  The stock is down to $28.61 ($28,610) and the $37.50 puts are now $10.25 ($10,250) and the $37.50 calls are $1.50 ($1,500) and that’s net $16,860 plus $820 in dividends is $17,860 for a loss of $9,190 (34.2%) at the moment.  I’d buy back the short calls and double down on the stock down here as this is a silly sell-off.  

Top Trade Alert – Aug 7, 2023 – ALL & PRU

    • Sell 10 ALL Dec 2024 $100 puts for $8 ($8,000) 
    • Buy 20 ALL Dec 2024 $100 calls for $20 ($40,000) 
    • Sell 20 ALL Dec 2024 $110 calls for $14.20 ($28,400) 

That’s net $3,600 on the $20,000 spread with $16,400 (455%) upside potential at just $110 in about 17 months. Our worst case is being assigned 2,000 shares of ALL at net $101.80, which would be 7.5% below the current price. Realistically though, if we should face danger of assignment, we would roll the puts lower before buying.  

Timing is everything here.  We had them on the Watch List for almost a year and the bounce off the July lows triggered our double Top Trade Alert. We’ve blown out our conservative target and the $100 puts are now $2.40 ($2,400) and the $100 calls are $42.60 ($85,200) and the $110 calls are $33.70 ($67,400) so net $15,400 is up $11,800 (327%) in 5 months but I’d close the $100/110 spread for $17,800 and put that money back to work and let the puts expire down the road.

PRU had similar success:

    • Sell 10 PRU Dec 2025 $85 puts for $10 ($10,000)
    • Buy 20 PRU Dec 2025 $85 calls for $19.50 ($39,000) 
    • Sell 20 PRU Dec 2025 $100 calls for $12 ($24,000)  

That’s net $5,000 on the $30,000 spread with $25,000 (500%) upside potential and here we’re promising to buy 2,000 shares of PRU for net $102.50 if it all goes bad. More likely, we will spend a bit more money to widen the position as we get confident $100 will hold.

Here we’re not as far over goal and it’s a longer-term spread. We’re at $6.50 ($6,500) on the short puts (which are great for a new trade as that’s way too much) and $22.75 ($45,500) on the $85 calls and $16 ($32,000) on the $100 calls for net $7,000 and that’s only up $2,000 (40%) so far with $23,000 (328%) left to gain so this is great for a new trade!  

Top Trade Alert – Aug 22 2023 – IBM (IBM)

    • Sell 10 IBM 2025 $135 puts at $10 ($10,000)
    • Buy 20 IBM 2025 $140 calls at $16.50 ($33,000)
    • Sell 15 IBM 2025 $160 calls at $8 ($12,000)
    • Sell 7 IBM Nov $145 calls at $4.60 ($3,220)

That’s net $7,780 on the $40,000 spread so we have $32,220 (414%) of upside potential at $160 and, along the way, we’ve used 87 out of 514 days so far so at least 5 more sales of $3,000 can drop another $15,000 into our pockets while we wait.

IBM was $152.89 on Nov $17 so the short $145s cost $7.89 to buy back (we would have rolled them, of course) but that’s OK as the 2025 $135 puts are down to $4.30 ($4,300) and the $140 calls are $29.50 ($59,000) and we only sold 15 $160 calls, now $15.72 ($23,580) so net $23,230 (including the buy-back) is still up $15,450 (198%) in 4 months is not bad and only a year to collect the next $24,550 (158%) if IBM holds $160 so good for a new trade and I’d sell 7 of the April $165s for $6.50 ($4,550) as that’s a 29.4% return on the $15,450 in just 113 days – who turns that down?  

Top Trade Alert – Aug 25 2023 – Overstock (OSTK) – Now BYON!

  • Sell 20 OSTK 2025 $20 puts for $4.40 ($8,800) 
  • Buy 50 OSTK 2025 $20 calls for $10 ($50,000) 
  • Sell 40 OSTK 2025 $35 calls for $5 ($20,000) 
  • Sell 10 OSTK Oct $25 calls for $2.10 ($2,100) 

That’s net $19,100 on the $75,000+ spread and we’ve only used 56 out of 511 days we have to sell so let’s say we have a path to selling 8 more short-term calls for $2,000 – that would be $16,000 of income while we wait on our $75,000.  If OSTK goes lower, we still sell short-term calls, possibly more than 10 at a time and we use that money to roll the $20 calls to the $15 calls (now $12.30), which would cost $11,500 – less than we plan to collect selling longs. 

It’s only back to where we came in but we were pretty conservative and we sold the short Oct calls, which expired worthless and now the $20 puts are $3.60 ($7,200) and the $20 calls are $13.70 ($68,500) and the $35 calls are $7.20 ($28,800) so net $32,500 is up $13,400 (70.1%) so far but it’s a $75,000+ spread so still $42,500 (130%) left to gain in a year is still worth playing!

Top Trade Alert – Sept 7 2023 – BYD and Barbie (MAT)

    • Sell 10 BYD 2025 $65 puts for $8.50 ($8,500) 
    • Buy 20 BYD 2025 $60 calls for $16.50 ($33,000) 
    • Sell 20 BYD 2025 $80 calls for $8 ($16,000) 

That’s net $8,500 on the $40,000 spread giving us $31,500 (370%) upside potential at $80 but, as our Members know, with such a wide spread we plan to also sell short calls for income when the stock pops.  At the moment, the Jan $70 calls are $2.40 and the $60 calls are $8 so, if the Jan $70 calls get over $6, we’d be happy to sell 5 for $3,000 – using 134 of our 498 days we have to see and we’d be on a good path for getting back our $8,500 and turning it into a free spread (with the put obligation) 

It kept falling but now back above our entry. That’s the problem with being a Fundamental investor – I can only tell you when something is too cheap – that does not mean it won’t get cheaper…  In any case, we’re looking good now and the $65 puts are $6.60 ($6,600) and the $60 calls are $9.70 ($19,400) and the $80 calls are $1.85 ($3,700) as the premium drained out of them but it’s still net $9,200, which is up just $700 (8.2%) so far and there’s still $30,800 (334%) left to gain for 2024 if BYD can get to $80.

    • Sell 10 MAT 2025 $20 puts for $2 ($2,000)
    • Buy 20 MAT 2025 $18 calls for $6.50 ($13,000)
    • Sell 15 MAT 2025 $25 calls for $2.95 ($4,425)
    • Sell 5 MAT Jan $22 calls for $1.90 ($950)

That’s net $5,625 on the $14,000 spread that’s mostly in the money. We have no upside risk with the short calls and we can always sell more but we’ve taken in $950 using 134 of our 498 days so 3 more sales will drive our basis down nicely – even if we just sell 5 units.

We bought these at the top and we’ll have to see if Q4 earnings got a bump from the movie. At the moment, the $20 puts are $2.75 ($2,750) and the $18 calls are $3.80 ($7,600) and the $25 calls are $1.10 ($1,650) and the short $22s are just 0.05 ($5) for net $3,195, which is down $2,430 (43.2%) and I’d wait for earnings to see what happens.  

Top Trade Alert – Sept 14 2023 – CSCO and AKAM

    • Sell 10 CSCO 2026 $50 puts for $4.10 ($4,100)
    • Buy 25 CSCO 2026 $55 calls for $9.50 ($23,750) 
    • Sell 20 CSCO 2025 $70 calls for $3.85 ($7,700)
    • Sell 10 CSCO Jan $55 calls for $3.50 ($3,500) 

That’s net $8,450 on the $37,500 spread so we have $29,050 (343%) upside potential if CSCO gains 25% to $70 over the next two years. We sold $3,500 using one of the 9 quarters we have to sell and 8 more sales like that can drop another $28,000 in our pockets while we wait.  The risk is owning 1,000 shares of CSCO at $50 plus whatever we lose on the spread – net $58.45 would be the worst and that’s not so bad, is it?  

Disappointing so far but 2 years to go and, fortunately, we sold the Jan $55s, which are now 0.03 ($3). The $50 puts are $5.60 ($5,600) and the $55 calls are $4.85 ($12,125) and the $70 calls $1.20 ($2,400) for net $4,122 and that’s a $4,328 (51.2%) loss and I’d buy back the short $70s and wait for the bounce to sell more short 2025 calls as well as short April calls – hopefully the $55s for $2.50+.  

    • Sell 10 AKAM 2026 $95 puts for $9 ($9,000) 
    • Buy 20 AKAM 2026 $90 calls at $32 ($62,000) 
    • Sell 20 AKAM 2025 $110 calls at $20.50 ($41,000) 
    • Sell 5 AKAM Jan $105 calls at $7 ($3,500) 

Again we are spending net $8,500 but this time it’s on a $40,000 spread that’s $28,000 in the money to start!  The upside potential at $110 is $31,500 (370%) and we have 8 more quarters to sell $3,500 in premium for a potential bonus of $28,000 while we wait – I’m feeling more secure already!  

This one went well and we are over target already with the short $95 puts down to $5 ($5,000) and the $90 calls are $41.50 ($83,000) and the $110 calls are $20.50 ($41,000) and the Jan $105 calls are $15.50 ($7,750) so net $29,250 is up $20,750 (244%) in just 3 months and almost 100% to go – better than that if we roll the short calls and we’ll roll the short $110s too when the time is right so this can be played new as well. 

Notice how it only takes one winner to more than make up for a couple of losers. By constantly giving ourselves excellent Risk/Reward ratios – we make it very, very likely that we’ll win in the long run.  Also notice how we use time-frames to our advantage as well as, of course, the only thing you can ALWAYS count on in the market and that is that ALL Premium Expires Worthless! 

PhilStockWorld Top Trade Alert – Sept 28 2023 – BBY, CAKE, GLW, KO, NLY, T, VALE & WHR

We finally got a nice sell-off so we jumped all over our Watch List (as we are trained to do) and picked a whole bunch of trade ideas – including our eventual Trade of the Year (VALE) and the runner-up (GLW) – two months before the picks were officially made.  This trade alert has dozens of great trade ideas.

    • Sell 10 BBY 2026 $65 puts for $11 ($11,000)
    • Buy 20 BBY 2026 $65 calls for $14.50 ($29,000)
    • Sell 15 BBY 2026 $85 calls for $7.25 ($10,870)

That’s net $7,130 on the $40,000 spread with $32,870+ (461%) upside potential and the Jan $70 calls are $4.25 so selling 7 of those would bring in $2,975 for a 41% monthly return – but not yet.

Again, you can see how we watch stocks and pull the trigger when they drop (after making sure we think the drop is overdone, of course). Fundamental OBSERVATION will beat charting EXTRAPOLATION every time!  The $65 puts are now $8 ($8,000) and the $65 calls are $18.75 ($37,500) and the $85 calls are now $10.50 ($15,750) for net $13,750 so far and that’s up $6,620 (92.8%) in 3 months and there’s another $26,250 (190%) left to gain in this spread that is well on-track.

    • Sell 10 CAKE July $30 puts for $3.60 ($3,600)

We sell short puts to remind ourselves to watch a stock closely but we missed the rapid rise of CAKE and didn’t add more. Still, the short $30s are down to $1.20 ($1,200) and we’re up $2,400 (66.6%).

    • Sell 10 GLW 2026 $30 puts for $4 ($4,000)
    • Buy 25 GLW 2026 $25 calls for $7.50 ($18,750)
    • Sell 20 GLW 2026 $37 calls for $2.50 ($5,000)

That’s net $9,750 on the $30,000+ spread that’s $12,500 in the money to start so very fair with an upside potential of $20,250+ (207%) and the Jan $30 calls are $1.90 so 10 short would be $1,900, which is 19.5% per quarter while we wait. Should be fun.

The $30 puts are down to $3.80 ($3,800) and the $25 calls are $8.50 ($21,250) and the $37 calls are 1.80 ($3,600) so net $13,850 is already up $4,100 (42%) but still a long way to go and we’re well on track.  

    • Sell 10 KO 2026 $55 puts for $4.25 ($4,250)
    • Buy 20 KO 2026 $50 calls for $10.50 ($21,000)
    • Sell 10 KO 2026 $60 calls for $5 ($5,000)
    • Sell 7 KO Jan $55 calls for $2.75 ($1,925)

That’s net $9,825 on the $20,000+ spread so 100% upside potential and we made 20% in our first quarter’s sale. We’re not even fully covered and can certainly roll the short $55s to 5 or less 2026 $60s and then we’d still have 5 open positions to keep selling.

As money comes in, we can spend $2.50 or less to roll the 2026 long calls down $5 or the 2026 short calls up $5 so we’ll widen the spread over time but, for now, it’s a nice conservative entry with great flexibility.

We got a good bottom on this one!  The $55 puts are $3.65 ($3,650), the $55 calls are $4 ($2,800), the $50 calls are $11.75 ($23,500) and the $60 calls are $5.80 ($5,800) for net $11,250 and that’s up $1,425 (14.5%) and still looking good for a double from here.  

    • Sell 10 NLY 2026 $20 puts for $5.60 ($5,600)
    • Buy 1,000 NLY at $18.68 ($18,680)
    • Sell 10 NLY 2026 $15 calls for $5.20 ($5,200)

That’s net $7,880 and we get called away at $15,000 for a $7,120 (90%) gain if we don’t roll. Meanwhile, the dividend is $2,600 (33%) per quarter while we wait! If we get assigned another 1,000 at $20, we’d have 2,000 for $27,880 and that’s $13.94, which is 25% off the current price as our worst case.

We get a $650 dividend today! The last one was Sept 28th and I’m not going to count that one as we only put out the alert that day. The stock is now $20,530 and the $20 puts are $4.75 ($4,750) and the $15 calls are $5.65 ($5,650) for net $10,130 and that’s up $2,250 (28.5%) in 3 months which is way more than the dividend despite how conservatively we played it.  

    • Buy 1,000 shares of T for $15 ($15,000)
    • Sell 20 T 2026 $15 puts for $2.25 ($4,500)
    • Sell 10 T 2026 $15 calls for $1.85 ($1,850)

That’s net $8,700 and we pick up $6,300 (72%) at $15+ and, if assigned 2,000 more at $15, that’s $38,700, which is $12.90/share and that’s fine too. Meanwhile, the dividend is $1.10 ($1,100) per year, which is a 12.6% bonus.

We picked them often enough so it’s a broken clock sort of thing but that’s how you play a major blue chip over time – just keep buying it and eventually you get it right! The shares are $16,580 and the puts are $1.55 ($2,300) and the calls are $2.70 ($2,700) and the dividend was $278 on Oct 6th so net $11,858 is up $3,158 (36.2%) in 3 months – who says dividend stocks are boring?  

    • Sell 30 VALE 2026 $15 puts for $3.75 ($11,250)
    • Buy 50 VALE 2026 $10 calls for $4.20 ($21,000)
    • Sell 40 VALE 2026 $17 calls for $1.40 ($5,600)

That’s net $4,150 on the $35,000 spread so we have $31,850+ (767%) upside potential (because we’re very aggressive on the short puts but do we really mind owning $45,000 worth of VALE when we can sell puts and calls for $6.60 ($19,800) per year?) and the Jan $14s are 0.70 so 15 short would be $1,050 which is 25% per quarter in income on a spread that’s $16,150 in the money to start!

Turned out to be our Stock of the Year for 2024 and our entry was almost perfect.  The $15 puts are down to $2.45 ($7,350), the $10 calls are $6.30 ($31,500) and the $17 calls are $2.10 ($8,400) for net $15,750, which is already up $11,600 (279%) in 3 months but there’s more than 100% left to gain so still a great trade!  

    • Sell 5 WHR 2026 $120 puts for $17.50 ($8,750)
    • Buy 15 WHR 2026 $120 calls for $27.50 ($41,250)
    • Sell 10 WHR 2026 $150 calls for $14.50 ($14,500)

That’s net $18,000 in the $45,000 spread that’s $22,500 in the money and not fully covered. There’s $27,000+ (150%) upside potential and, currently, we could sell 7 Jan $140s for $5.50 ($3,850) for a 21% quarterly return while we wait – but not yet.

Barely getting back to where we came in but that’s a chance to get in for you! The $120 puts are $20.70 ($10,350), the $120 calls are $19.50 ($29,250) and the $150 calls are $10.50 ($10,500) and that’s net $8,400, which is down $9,600 (53.3%) but that means there’s $35,400+ left to gain from here – great for a new trade.  

PhilStockWorld Top Trade Alert – Oct 24, 2023 – SQQQ and BCS

Given the overall uncertainty in the markets, I’d like to place a hedge in the portfolio BUT, given the overall uncertainty – I’d like not to have a big loss if the market keeps going up. Two weeks ago, we came up with a clever hedging solution for our Members for our Short-Term Portfolio and, for the Money Talk Portfolio, I’m going to do something very similar to what we did on the 13th:

    • Buy 100 SQQQ 2025 $20 calls for $6.70 ($67,000)
    • Sell 40 SQQQ 2025 $30 calls for $5.00 ($20,000)
    • Sell 60 SQQQ Jan $35 calls for $4.50 ($27,000)

What we have is a net $20,000 investment in a potentially $130,000 spread. SQQQ is a 3x inverse ETF on the Nasdaq so, for it to gain 75% to $35, the Nasdaq would have to drop 25%. Hopefully that does not happen but, if it does, we make $110,000 to offset our losses.  

Down and down the SQQQ went since October.  Still we had the right strategy and the $20 calls are now $2.20 ($22,000) and the $30 calls are $1.35 ($5,400) and the $35 calls are 0.02 ($120) and that’s net $16,480 for a loss of $3,520 (17.6%) was our cost of insurance against all of the above gains – well worth it!  

Now we salvage the $22,000 and roll the 2025 $20 calls to 200 of the 2026 $10 ($5.50)/20 ($3.60) bull call spreads at $1.10 ($22,000) and that’s now a $200,000 spread that’s $64,440 in the money covering the short calls and we buy back half for $2.50 ($5,000) if SQQQ goes up.  

=============================================

Since we have free insurance and plenty of CASH!!!, let’s add a bank to our portfolio and Barclays (BCS) just disappointed on earnings by announcing they are taking charge-offs in Q4 – so that disappointment stands ahead. Fortunately, BCS is on our Watch List so we’re well-aware of the issues and $6.50 is a good $2.50 (38%) below fair value so this is a great time to learn a Stupid Options Trick and buy the stock for half price so we can collect that 0.38 annual dividend.

      • Buy 5,000 shares of BCS for $6.50 ($32,500) 
      • Sell 50 BCS 2026 $5 calls for $2.25 ($11,250) 
      • Sell 50 BCS 2026 $7 puts for $1.60 ($8,000) 

That’s net $13,250 for 5,000 shares ($2.65/share) and we will collect about 0.10 ($500) per quarter in dividends for 9 quarters ($4,500) and, if called away at $5, another $25,000 less whatever amount we are below $7 but, even if we’re just at $5, it’s net $19,500 back for a profit of $6,250 (47%).  That’s what happens if we drop $1.50 to $5. 

If we rise 0.50 to $7, then we end up with $16,250 in profits (260%) in two years. Our worst-case scenario is being assigned another 5,000 shares at $7 ($35,000) and, if we lose the initial $13,250 entirely, we’ll have 10,000 shares at net $48,250 ($4.825/share), which is STILL a 25% discount to the current price – that’s our WORST case!  Aren’t options fun?  

Looks like the best-case scenario is kicking in and the shares are now $39,750 and the $5 calls are $3.35 ($16,750) and the $7 puts are 0.95 ($4,750) and that’s net $18,250, which is already up $5,000 (37.7%) already.  

Top Trade Alert – Oct 30, 2023 – Ford (F)

  • Sell 20 F 2026 $12 puts for $3.50 ($7,000)
  • Buy 75 F 2026 $10 calls for $1.75 ($13,125)
  • Sell 75 F 2026 $15 calls for 0.65 ($4,875)

That’s net $1,250 on the $37,500 spread so $36,250 upside potential at $15 but even $13 pays $7,500 – which would be just fine.

Talk about easy money! We hit that one right on the nose with another broken clock trade (we bet on the strike being settled for timing). The aggressive put sale paid off as they are down to $2.10 ($4,200) already and the $10 calls are $3.40 ($25,500) and the $15 calls are $1.35 ($10,125) so net $11,175 is up $9,925 (794%) in two months and there’s still $26,075 (233%) left to gain that looks much less risky now!

PhilStockWorld Top Trade Alert – Nov 2 2023 – Altria (MO)

 I have to agree, $40 is silly so let’s take the opportunity to add them to the Income Portfolio, as they are paying out $3.92 per $40.44 share – close to 10% – and we can make it over 10%:

    • Buy 500 MO at $40.44 ($20,220)
    • Sell 5 MO 2026 $42.50 puts at $8.25 ($4,125)
    • Sell 5 MO 2026 $35 calls at $6.25 ($3,125)

That’s net $12,970 and, if we are called away at $35, that’s $17,500 for a $4,530 (34.9%) profit and they are paying 0.98 ($490) x 9 payouts = $4,410 (34%) so an overall 68.9% return at $42.50+ and worst case is we get assigned 500 more at $35 ($17,500) and we’re in 1,000 for net $30,470 ($30.47), which is still 24.6% off the current price – that’s our WORST case!

****************************************

For the LTP, we can do much, much better with:

    • Sell 10 MO 2026 $42.50 puts at $8.25 ($8,250)
    • Buy 50 MO 2026 $40 calls at $3.40 ($17,000)
    • Sell 40 MO 2026 $47.50 calls for $1.10 ($4,400)

That’s net $4,350 on the $37,500+ spread and the plan is, of course, to sell 10 Jan $45 calls, now $1, for $2+, which is where they were a week ago. If we can generate $2,000 per quarter selling calls, that’s $18,000 (413%) back before we even count profits from the longs.

Thank goodness we got a good entry as they fell back to where we started. I’ve lost confidence in MO but, for the record, on trade #1 – we’re at $20,900 on the stock and the puts are $7.20 ($3,600) and the calls are $6.30 ($3,150) and we just collected a $490 dividend on Dec 20th so net $14,640 is up $1,670 (12.8%), despite the downturn. That’s simply because we sold premium and ALL Premium Expires Worthless!  

Trade #2 is the same $7.20 ($7,200) for the short puts and the $40 calls are $3.10 ($15,500) and the $47.50 calls are 0.85 ($3,400) and that’s net $4,900 which is surprisingly still a gain of $550 (12.6%) – even without the dividends to save us.  

PhilStockWorld Top Trade Alert – Nov 27 2023 – TD Bank (TD)

Now, we’re not saying it’s going to happen that soon but, eventually, the Dollar will weaken and it’s a good hedge if we are playing the Fed to stay tight and they get loose instead – that will weaken the Dollar, strengthen CAD and TD is off to the races – see how easy it is? A nice play to make on TD for our Butterfly Portfolio is: 

    • Sell 5 TD 2026 $60 puts for $6 ($3,000) 
    • Buy 15 TD 2026 $60 calls for $8 ($12,000) 
    • Sell 10 TD 2026 $70 calls for4 $4 ($4,000) 
    • Sell 5 TD April $60 calls for $3.75 ($1,875) 

That’s net $3,125 on the $15,000 spread so we have $11,875 (380%) upside potential at $70 but notice we sold $1,875 in premium using our first 144 days out of the 781 we have to sell.  So, if TD is down or flat, we’ll have 4 more sales like that and make about $7,500, which would turn our spread into a net credit. If TD is up then we roll the short calls to higher strikes and we’ll have our $15,000 in 2 years.  Aren’t options fun?  

Working out well already with the $60 puts at $4.80 ($2,400) and the $60 calls at $9 ($13,500), the $70 calls still $4 ($4,000) and the short April $60s are $5.80 ($2,900) so net $4,200 is up $1,075 but that’s up 34.4% in a month – nothing to cry about! 

PhilStockWorld Top Trade Alert – Nov 27 2023 – Vale S.A. (VALE) + 6

    • Sell 10 GLW 2026 $32 puts for $5.75 ($5,750) 
    • Buy 25 GLW 2026 $25 calls for $6 ($15,000)
    • Sell 20 GLW 2026 $37 calls for $2.75 ($5,500) 

That’s net $3,750 on the $30,000 spread with $26,250 (700%) of upside potential. The short calls are aggressive so we risk assignment of 1,000 shares at net ($32,000 + $3,750 =) $35,750 or $35.75/share but it’s another one we don’t mind doubling down on and, of course, we can always roll the short puts – the 2026 $25s are $2.60 so a 2x roll to there means we’re in 2,000 shares at net roughly the current price – that’s very acceptable as a risk vs the very large potential reward.  

Never be ashamed to pick things twice! If it was a good time to buy it and it is still a good time to buy it – then why not pick it again? In this case, these were our Trade of the Year finalists – so all worth mentioning.  It was just a month ago – so don’t expect much…

The puts are now $4.40 ($4,400) and the $25s are $7.50 ($18,750) and the $37s are $1.90 ($3,800) so an excellent net $10,550 already is up $6,800 in 30 days – pretty good! That’s largely because the VIX collapsed so our strategy of buying in the money calls and selling 100% premium calls and aggressive puts really paid off.  Still good for a new trade too with about 200% left to go. 

    • Sell 20 LEVI 2026 $15 puts at $2.50 ($5,000) 
    • Buy 40 LEVI 2026 $10 calls at $6.50 ($26,000) 
    • Sell 35 LEVI 2026 $15 calls at $3.50 ($12,250) 

That’s net $8,750 on the $20,000 that is STARTING OUT 100% IN THE MONEY with $11,250 (128%) upside potential.  All LEVI has to do is not go lower and we make 64% a year back on our $11,250 – that’s fun!  We’ve left ourselves room to make money selling short-term calls as well – once we’re back over $18 we can start doing that.  

Top Trade Alerts are all about trade ideas that are highly likely to succeed – usually because something we’ve been watching has hit our value point AND has an upcoming catalyst that we see before the rest of the market does – that’s the key to our success. Around that we construct high Risk/Reward option spreads with conservative (usually) strike targets and the results you can see for yourself, right?   

The $15 puts are down to $1.85 ($3,700) and the $10 calls are $7.70 ($30,800) and the $15 calls are $4.60 ($16,100) so that’s net $11,000 is up a quick $2,250 (25.7%) but still $9,000 (81.8%) upside potential for a trade that is well over 100% in the money already.  

A great example of making huge money taking a very, very small risk.  

    • Sell 15 VALE 2026 $17 puts for $4 ($6,000) 
    • Buy 25 VALE 2026 $10 calls for $5.35 ($13,375) 
    • Sell 20 VALE 2026 $15 calls for $2.55 ($6,375) 

That’s net $1,000 on the $12,500 spread so we have $11,500 (1,150%) upside potential if VALE can make it up 0.07 to $15 in the next two years – that’s pretty conservative, right?  Of course we need $17 for the puts to expire worthless and the risk is owning 1,500 shares of VALE at $17 plus losing the $1,000 is net $17.66, which is 18.3% OVER the current price but we’re happy to double down on VALE if we’re wrong and we’ve left ourselves an opening to sell short calls along the way.  

The aggressive $17 puts are now $3.50 ($5,250) and the $10 calls are $6.30 ($15,750) and the $15 calls are $3 ($6,000) for a nice net $4,500, which is already up $3,500 (350%) and our Trade of the Year goal is to be up 300% so it’s a new record at 30-days!  Still a lot of room to grow too…

As to the other trades, as I said in the Alert: “See this morning’s post (PhilStockWorld 2024 Trade of the Year (Members Only)) for trade ideas on BBY, CROX, GLW, LEVI, MP and PARA but VALE is the winner of the group after a very intense selection process that began with our Watch List Review back in late September.” I’m not going to do the rest here as we’ve already done all of them above somewhere.  

Top Trade Alert – Dec 18, 2023 – Cleveland Cliffs (CLF)

    • Sell 15 CLF 2026 $17 puts for $3 ($4,500)
    • Buy 20 CLF 2026 $15 calls for $7 ($14,000)
    • Sell 20 CLF 2026 $20 calls for $4.60 ($9,200) 

That’s net $300 on the $10,000 spread so there’s $9,700 (3,230%) of upside potential if X is over $20 in 2 years. If they do get bought, the options will trigger early and that will make us very happy! If they don’t get bought, our break-even is $17.03 – 9% below the current price.

This one was simple logic where I said: “$14.1Bn is a 60% premium to Friday’s close which what an 80% gain since rumors about a buyout of X began in August so good luck to Japan justifying that purchase! This should also be good for CLF because they WON’T be buying X and most people think they were biting off more than they could chew with their original offer.” – that’s what a catalyst is.

As expected, they popped back up and the puts are down to $2.30 ($3,450) and the $15 calls are $8.55 ($17,100) and the $20 calls are $5.85 ($11,700) so net $1,950 is up $1,650 (550%) but there’s still $8,350 (506%) left to gain so great for a new trade as it’s already over our goal.  

And that (plus our 4 new Trade Ideas we started with) is that for 2023! We had 24 winners and 5 losers for a 82.7% winning percentage and, added to the first half’s 14 and 4 (77.7%), we’re at 38 wins and 9 losses – +80.8% for the year.  

Combine that kind of winning percentage with our very strong Risk/Reward strategy and it’s led to +$97,693 in winners less $29,068 in losses is a net gain of $68,625 for our 2nd half Top Trade Ideas (so far).

Looking forward to many more exciting trades and a very profitable 2024 with you! 

 

Top Trade Alert – Dec 18, 2023 – Cleveland Cliffs (CLF)

0

$14.1Bn, that would have made old JP Morgan Happy.

The Founding of U.S. Steel and the Power of Public Opinion | Baker Library  | Bloomberg Center | Harvard Business School

US Steel became America’s first Billion-Dollar corporation in 1901, after JP Morgan bought out Andrew Carnegie’s steel companies for $492M and then rolled up several other steel companies, including Charles Schwab’s steel company as well (this is where all that money came from – 100 year’s compound returns on $1Bn!).

$14.1Bn is a 60% premium to Friday’s close which what an 80% gain since rumors about a buyout of X began in August so good luck to Japan justifying that purchase! This should also be good for CLF because they WON’T be buying X and most people think they were biting off more than they could chew with their original offer.  

At just $9.4Bn in market cap with almost $1Bn in profits on $21Bn in sales, CLF seems a bit undervalued as X only had $17Bn in sales with the same $1Bn in profits. For our Short-Term Portfolio (STP) I think a fun way to play CLF would be:  

    • Sell 15 CLF 2026 $17 puts for $3 ($4,500)
    • Buy 20 CLF 2026 $15 calls for $7 ($14,000)
    • Sell 20 CLF 2026 $20 calls for $4.60 ($9,200) 

That’s net $300 on the $10,000 spread so there’s $9,700 (3,230%) of upside potential if X is over $20 in 2 years. If they do get bought, the options will trigger early and that will make us very happy! If they don’t get bought, our break-even is $17.03 – 9% below the current price.

It’s possible the purchase of X may be blocked as steel is a vital industry for the US but we still like CLF long-term, trading at just 10x earnings – so I don’t see a good reason not to make this trade.  

 

PhilStockWorld Top Trade Alert – Nov 27 2023 – Vale S.A. (VALE) + 6

0

We have our Trade of the Year and it’s VALE!  

See this morning’s post for trade ideas on BBY, CROX, GLW, LEVI, MP and PARA but VALE is the winner of the group after a very intense selection process that began with our Watch List Review back in late September. 

In fact, let’s reprint the entire narrative from the final 3 to our final selection:  

That leaves us with LEVI, VALE and GLW as our Top 3 and boy are those very different stocks!  

They all share a common theme of being things people need (jeans, raw materials and phone screens) whether the economy is good or bad. LEVI lost $127M in 2020 and VALE lost $1.3Bn in 2020 and GLW made $512M in 2020 – that may be the deciding factor. Unusual as those circumstances may be – they were certainly not something we were considering in November of 2019. 

In 2020, GLW bottomed out at $19.51 and it was down for just a month before rocketing back up to the $30s (now $28.22).  VALE hit $7.53 and back to $12 in a month but all the way until November to retake $15 (where it is now) while LEVI hit $11.14 but took 3 months to get back over $15 (where it is now).  So, GLW is lower than it was pre-Covid and recovered best and fastest post-Covid – that’s the kind of resiliency we’re looking for. 

GLW, however, has $5.2Bn in debt and let’s say it ends up rolling over at 5% more than they are paying now, that’s $260M off their $1.45Bn in profits so $1.25Bn against the $24Bn market cap is still not terrible (20x) and even when people don’t buy new phones they still need new screens (all too often) and the catalyst that I love for GLW is the new iPhone cycle with new iPads coming as well.  

VALE has 41.3Bn in debt but that’s Reals so “only” $8.4Bn, which is about what they make in a year – so not a huge worry – especially when $14.94 is “only” $64.3Bn so trading at 7.65x earnings with manageable debt makes it very hard to figure out why this wouldn’t be the Trade of the Year? VALE has about $20Bn in gross profit on $43.8Bn in revenues last year but it’s half of that this year as they are in an investment cycle and prices have calmed down.  

80% of VALE’s revenues come from Iron Ore so we need to think about where Iron Ore pricing is going in 2024.  The rest of the revenues come from Copper and Nickel, which simply get dug up as a byproduct of the Iron mining so the Iron is all that matters. China is the largest consumer of Iron Ore and it seems they are going to be pushing Machinery, Shipping, Autos and Infrastructure to offset the downturn in Real Estate so $120/tonne seems realistic and that’s at the high end of this year’s range, which started in the $90s so almost a certainty that Q4 and Q1 comps will be easy beats to last year – those are solid reasons to pick VALE, which is now officially ahead of GLW. 

GLW is already in our LTP and that spread still stands up as a great idea:  

    • Sell 10 GLW 2026 $32 puts for $5.75 ($5,750) 
    • Buy 25 GLW 2026 $25 calls for $6 ($15,000)
    • Sell 20 GLW 2026 $37 calls for $2.75 ($5,500) 

That’s net $3,750 on the $30,000 spread with $26,250 (700%) of upside potential. The short calls are aggressive so we risk assignment of 1,000 shares at net ($32,000 + $3,750 =) $35,750 or $35.75/share but it’s another one we don’t mind doubling down on and, of course, we can always roll the short puts – the 2026 $25s are $2.60 so a 2x roll to there means we’re in 2,000 shares at net roughly the current price – that’s very acceptable as a risk vs the very large potential reward.  

LEVI – As noted, LEVI lost money in the pandemic but it came back to $15, so we feel safe here. 2019 Revenues were $5.7Bn and Profits were $395M and 2023 Revenues are $6.2Bn with profits at $435M so the company seems very, very steady and $500M in debt isn’t going to kill them. 

So this is going to come down to which is more likely in 2024, will the Consumers cut back on discretionary spending or will China us less Iron Ore? I guess I’ll have to give that to VALE as we’re pretty sure Consumers are stressed out and China can just print money. 

That means it’s adios to LEVI but a solid #2 and we don’t have them in our portfolios so, for the LTP, let’s:

    • Sell 20 LEVI 2026 $15 puts at $2.50 ($5,000) 
    • Buy 40 LEVI 2026 $10 calls at $6.50 ($26,000) 
    • Sell 35 LEVI 2026 $15 calls at $3.50 ($12,250) 

That’s net $8,750 on the $20,000 that is STARTING OUT 100% IN THE MONEY with $11,250 (128%) upside potential.  All LEVI has to do is not go lower and we make 64% a year back on our $11,250 – that’s fun!  We’ve left ourselves room to make money selling short-term calls as well – once we’re back over $18 we can start doing that.  

And so, officially, our 2024 Trade of the Year is going to be VALE! With all the Infrastructure spending it’s hard to imagine a drop in demand for Iron Ore and, even if we have a recession – more Infrastructure is often the stimulus solution. They also have easy comps to beat in the next two quarters they report – so there’s the catalyst we like to see.  

We already have VALE in our LTP and it’s an aggressive 50 2026 $10 calls, uncovered with 30 short 2026 $15 puts. VALE just blasted up from $12 to $15 (+25%) this month so we’re not going to be too aggressive as a new play but I think it will make a nice addition to our Butterfly Portfolio – so let’s give it this entry: 

    • Sell 15 VALE 2026 $17 puts for $4 ($6,000) 
    • Buy 25 VALE 2026 $10 calls for $5.35 ($13,375) 
    • Sell 20 VALE 2026 $15 calls for $2.55 ($6,375) 

That’s net $1,000 on the $12,500 spread so we have $11,500 (1,150%) upside potential if VALE can make it up 0.07 to $15 in the next two years – that’s pretty conservative, right?  Of course we need $17 for the puts to expire worthless and the risk is owning 1,500 shares of VALE at $17 plus losing the $1,000 is net $17.66, which is 18.3% OVER the current price but we’re happy to double down on VALE if we’re wrong and we’ve left ourselves an opening to sell short calls along the way.  

For example, we could sell 10 of the Mach $15 calls for $1.05 ($1,050) using 106 of the 778 days we have to sell. 4 sales like that in 2023 and we’ll already have our 300% gain – despite what the stock actually does. For now, though, we’ll wait and see how it goes before making a sale.  

I’m looking forward to 2024 – it’s going to be an interesting year!  

 

PhilStockWorld Top Trade Alert – Nov 27 2023 – TD Bank (TD)

0

CAD Chart MonthlyTD Bank (TD) is cheap at $61.50 ahead of their earnings as well – especially when you consider that, for the past year, they have been lending out money at less than 75 CAD to the Dollar and, assuming Canada’s currency doesn’t completely collapse – the are likely to get paid back in stronger loonies in the Future and THAT will be a very nice bonus boost to profits down the road.  

I asked Shelbot to check my math and he has this to say: 

 🤓 To illustrate the potential impact of a stronger CAD on TD Bank’s earnings, we can use a hypothetical scenario where the CAD/USD rate increases from 1.36 to 1.30 by the end of 2023. Assuming that TD Bank’s US operations have the same level of profitability and growth as in the third quarter of 2023, and that the average exchange rate for the fourth quarter of 2023 is 1.33, we can estimate the following effects:

    • When the CAD is weak relative to the USD, TD Bank’s US earnings are worth more in CAD terms, and vice versa. This is called the translation effect1. The translation effect would be negative, meaning that TD Bank’s US net income would be worth less in CAD terms. Based on the third quarter net income of $1,590 million CAD, we can estimate that the fourth quarter net income would be $1,557 million CAD, using the average exchange rate of 1.33. This would be a decrease of $33 million CAD, or 2%, compared to the third quarter.
    • The revaluation effect would be positive, meaning that TD Bank’s US net asset position would increase in value in CAD terms. Based on the net asset position of $77,491 million CAD as of November 24, 2023, we can estimate that the net asset position as of December 31, 2023 would be $83,333 million CAD, using the spot exchange rate of 1.30. This would be an increase of $5,842 million CAD, or 8%, compared to November 24, 2023.
    • The net effect of these two effects would be positive, meaning that TD Bank’s earnings would increase in CAD terms. The increase in the net asset position would more than offset the decrease in the net income, resulting in a net gain of $5,809 million CAD, or 7%, compared to the third quarter.

Now, we’re not saying it’s going to happen that soon but, eventually, the Dollar will weaken and it’s a good hedge if we are playing the Fed to stay tight and they get loose instead – that will weaken the Dollar, strengthen CAD and TD is off to the races – see how easy it is? A nice play to make on TD for our Butterfly Portfolio is: 

    • Sell 5 TD 2026 $60 puts for $6 ($3,000) 
    • Buy 15 TD 2026 $60 calls for $8 ($12,000) 
    • Sell 10 TD 2026 $70 calls for4 $4 ($4,000) 
    • Sell 5 TD April $60 calls for $3.75 ($1,875) 

That’s net $3,125 on the $15,000 spread so we have $11,875 (380%) upside potential at $70 but notice we sold $1,875 in premium using our first 144 days out of the 781 we have to sell.  So, if TD is down or flat, we’ll have 4 more sales like that and make about $7,500, which would turn our spread into a net credit. If TD is up then we roll the short calls to higher strikes and we’ll have our $15,000 in 2 years.  Aren’t options fun?  

PhilStockWorld Top Trade Alert – Nov 2 2023 – Altria (MO)

0

I’m having Claude (not fun Claude – no room!) run the base analysis using the Quarterly Report and the Conference call (MO, in this case) and then letting Shelbot add new information and perform a valuation:

 👺  Based on reviewing the 10-Q, earnings call transcript, and analyst reports on Altria’s Q3 2023 results, here is a full analysis of the company’s current situation and outlook:

Financial Performance
– Q3 revenue of $6.3B, down 4% year-over-year, missed expectations by $155M 
– Q3 adjusted EPS of $1.28, down 2% YoY, missed by $0.02
– For the first 9 months, revenue fell 2.5% and adjusted EPS grew 3.3%
– Full year adjusted EPS guidance narrowed to $4.91-$4.98 (1.5-3% growth), lowering midpoint from prior $4.96

Key Factors:
– Cigarette shipment volumes fell 10.5% for the quarter, worse than the industry decline of 8%
– Smokeable products OCI down 2.5% for the quarter due to higher promotional spending and volume declines
– Oral tobacco OCI grew 7% with higher pricing and more efficient promotions for on!
– Progress made expanding NJOY distribution, but minimal financial contribution so far

Market Share and Pricing
– Marlboro retail share was stable sequentially, grew in premium segment  
– Net price realization up 8.6% for smokeables, showing ability to raise prices
– Total discount cigarette segment grew 1.1 points to 28.2% of market
– On! gained 0.7 points of share in oral tobacco, now at 6.9% 

Industry/Regulatory Issues
– Cigarette industry volume under pressure from economy and illicit flavored e-cigs
– Altria estimates illicit e-vapor depressing cigarette volume by 1.5-2.5 points
– Calling for FDA enforcement against illegally marketed disposable e-vapor products
– Awaiting FDA action on potential menthol ban and nicotine limits in cigarettes

Capital Allocation
– $5.1B in dividends paid and $732M in share repurchases YTD  
– Remain committed to dividend growth and share repurchases within cash flow

Outlook:
– Results reflect challenging cigarette industry dynamics negatively impacting volumes
– Pricing power and efficiencies helping protect profitability for now
– Transition to smoke-free portfolio advancing but remains long-term endeavor  
– Uncertainty persists around regulatory environment for tobacco/nicotine
– Stock may remain rangebound near-term amid volatility and uncertainty

Overall, Altria faces headwinds from cigarette volume declines and regulatory challenges, but continues working to transition business to smoke-free while returning cash to shareholders. Execution risks remain around portfolio evolution.

 🤓  Based on the analysis of Altria’s Q3 report and the web search results, here is my take on their proper valuation:

  • Altria’s valuation depends on several factors, such as its future earnings growth, its ability to transition to smoke-free products, its exposure to regulatory risks, and its capital allocation strategy.
  • Based on the current EPS guidance of $4.91-$4.98 for 2023, Altria’s P/E ratio is around 9, which is below its historical average of 12 and the industry average of 11. This implies that the market is discounting Altria’s future earnings potential due to the challenges it faces in the cigarette industry and the uncertainty around its smoke-free portfolio.
  • However, Altria still has some strengths that could support a higher valuation, such as its pricing power, its cost efficiencies, its strong cash flow generation, and its shareholder-friendly dividend and buyback policy. Altria also has a diversified portfolio of smoke-free products, including oral tobacco, e-vapor, and heated tobacco, which could provide growth opportunities in the long term.
  • Therefore, I think a fair valuation for Altria would be somewhere between 10 and 12 times its expected EPS for 2023, which translates to a price range of $49-$60 per share. This is slightly higher than the current market price of $40.50 and closer to the Morningstar valuation of $521. I think this range reflects both the risks and opportunities that Altria faces in its business segments.

😎 I have to agree, $40 is silly so let’s take the opportunity to add them to the Income Portfolio, as they are paying out $3.92 per $40.44 share – close to 10% – and we can make it over 10%:

  • Buy 500 MO at $40.44 ($20,220)
  • Sell 5 MO 2026 $42.50 puts at $8.25 ($4,125)
  • Sell 5 MO 2026 $35 calls at $6.25 ($3,125)

That’s net $12,970 and, if we are called away at $35, that’s $17,500 for a $4,530 (34.9%) profit and they are paying 0.98 ($490) x 9 payouts = $4,410 (34%) so an overall 68.9% return at $42.50+ and worst case is we get assigned 500 more at $35 ($17,500) and we’re in 1,000 for net $30,470 ($30.47), which is still 24.6% off the current price – that’s our WORST case!

****************************************

For the LTP, we can do much, much better with:

  • Sell 10 MO 2026 $42.50 puts at $8.25 ($8,250)
  • Buy 50 MO 2026 $40 calls at $3.40 ($17,000)
  • Sell 40 MO 2026 $47.50 calls for $1.10 ($4,400)

That’s net $4,350 on the $37,500+ spread and the plan is, of course, to sell 10 Jan $45 calls, now $1, for $2+, which is where they were a week ago. If we can generate $2,000 per quarter selling calls, that’s $18,000 (413%) back before we even count profits from the longs.

 

Top Trade Alert – Oct 30, 2023 – Ford (F)

0

I can’t believe we haven’t picked Ford in ages!  

They are certainly cheap enough now: 

Short-term, the new labor deal increases costs and reduces the company’s flexibility to adjust production but now they have labor stability going forward and the higher wages will help the auto companies attract workers from other industries – something that had been going the other way for a couple of years.

They needed the strike to insure all the major auto-makers had a level playing field and so they could raise worker’s compensation without being sued by the shareholders for giving away profits. Now they have a good excuse for raising prices across the board without being accused of collusion by the Government but the benefits will take time and the costs are immediate.

A big deal is being made by Ford’s putting off a $12Bn EV investment but of course they had to do that with $8Bn of contract raises to price in over 4 years but EV as put off, not cancelled.

F is still underpriced but don’t expect a big bounce. As a new trade, I’d go for:

  • Sell 20 F 2026 $12 puts for $3.50 ($7,000)
  • Buy 75 F 2026 $10 calls for $1.75 ($13,125)
  • Sell 75 F 2026 $15 calls for 0.65 ($4,875)

That’s net $1,250 on the $37,500 spread so $36,250 upside potential at $15 but even $13 pays $7,500 – which would be just fine.

PhilStockWorld Top Trade Alert – Oct 24, 2023 – SQQQ and BCS

0

There are several great trade ideas from the morning post at PSW as we’re back on Bloomberg TV tomorrow – adjusting our Money Talk Portfolio but the two new ones we’re adding are very appropriate as Top Trade Ideas. 

The first is SQQQ, which is similar to the Member Trade we did on October 13th. I love it because we’ll almost certainly end up with $110,000 worth of free insurance after making an initial $20,000 investment in our hedge.  

The second play is BCS – who just disappointed on earnings today but it’s nothing we didn’t expect and we like it as a long-term pick-up here:

Given the overall uncertainty in the markets, I’d like to place a hedge in the portfolio BUT, given the overall uncertainty – I’d like not to have a big loss if the market keeps going up. Two weeks ago, we came up with a clever hedging solution for our Members for our Short-Term Portfolio and, for the Money Talk Portfolio, I’m going to do something very similar to what we did on the 13th:

      • Buy 100 SQQQ 2025 $20 calls for $6.70 ($67,000)
      • Sell 40 SQQQ 2025 $30 calls for $5.00 ($20,000)
      • Sell 60 SQQQ Jan $35 calls for $4.50 ($27,000)

What we have is a net $20,000 investment in a potentially $130,000 spread. SQQQ is a 3x inverse ETF on the Nasdaq so, for it to gain 75% to $35, the Nasdaq would have to drop 25%. Hopefully that does not happen but, if it does, we make $110,000 to offset our losses.  

There’s also an income-producing component here as we sold 60 of the Jan $35 calls short for $27,000 and that’s using just 87 of the 451 days we have to sell so, if the Nasdaq does not pop higher, in January we’ll sell another set of short calls and another in April an, before you know it – we have FREE INSURANCE! Who doesn’t love free insurance?  

Since we have free insurance and plenty of CASH!!!, let’s add a bank to our portfolio and Barclays (BCS) just disappointed on earnings by announcing they are taking charge-offs in Q4 – so that disappointment stands ahead. Fortunately, BCS is on our Watch List so we’re well-aware of the issues and $6.50 is a good $2.50 (38%) below fair value so this is a great time to learn a Stupid Options Trick and buy the stock for half price so we can collect that 0.38 annual dividend.

      • Buy 5,000 shares of BCS for $6.50 ($32,500) 
      • Sell 50 BCS 2026 $5 calls for $2.25 ($11,250) 
      • Sell 50 BCS 2026 $7 puts for $1.60 ($8,000) 

That’s net $13,250 for 5,000 shares ($2.65/share) and we will collect about 0.10 ($500) per quarter in dividends for 9 quarters ($4,500) and, if called away at $5, another $25,000 less whatever amount we are below $7 but, even if we’re just at $5, it’s net $19,500 back for a profit of $6,250 (47%).  That’s what happens if we drop $1.50 to $5. 

If we rise 0.50 to $7, then we end up with $16,250 in profits (260%) in two years. Our worst-case scenario is being assigned another 5,000 shares at $7 ($35,000) and, if we lose the initial $13,250 entirely, we’ll have 10,000 shares at net $48,250 ($4.825/share), which is STILL a 25% discount to the current price – that’s our WORST case!  Aren’t options fun?