VIAC/Batman – That's what I was saying – at this price, they are going to get bought.

At $33.08, VIAC's 0.96 dividend is 3.2%, that's not bad.   Still, it's only collecting $2 over 2 years and you can sell the 2024 $30 puts for $5 to net in for $25, which would make the dividend 3.8% so let's consider that $5 to be totally free money, as the worst case would be owning 500 shares for $15,000.  In that case, a spread would be:

• Sell 5 VIAC 2024 $30 puts for $5 ($2,500)
• Buy 10 VIAC 2024 $25 calls for $11.60 ($11,600) 
• Sell 10 VIAC 2024 $30 calls for $8.80 ($8,800)

That's net $300 on the $5,000 spread so, rather than spending $16,500 on 500 shares of VIAC at $33, you obligate yourself to buy 500 shares at $15,300 and at $30, you make $4,700 as opposed to losing $1,500 and collecting $1,000 in dividends. Of course, the real competition would be a stock spread like:

• Buy 500 VIAC at $33 ($16,500)
• Sell 5 VIAC 2024 $30 calls for $8.80 ($4,400)
• Sell 5 VIAC 2024 $30 puts for $5 ($2,500) 

So here you have net $9,600 invested and you'll collect $1,000 in dividends and, if called away at $30 ($15,000), you will make $5,400 more.  So the stock trade is better if you don't mind obligating yourself to DD at $30, which would put you in (less dividends) 1,000 shares at $24,600, which is $8,400 (25%) below the current price – as your worst case.  

So both are good ways to play, more a matter of preference.  For me, in a PM account, I'd rather commit to 2x the options without using the cash.  

BofA's top 10 Q1 ideas gather precision picks for a volatile quarter

ViacomCBS Inc. (VIAC) Presents at UBS 2021 Global TMT Virtual Conference (Transcript)

ViacomCBS: Buy The Streaming, Get The Legacy Business As A Gift

Top Trades for Wed, 01 Dec 2021 12:52 – VIAC, INTC, MO, WBA and IBM (again)

Top Trades for Wed, 13 Oct 2021 09:16 – BYD, GOLD, HPQ, PFE, SPWR & VIAC

Top Trades for Mon, 29 Mar 2021 10:27 – DISCA and VIAC

Top Trades for Thu, 03 Sep 2020 15:01 – VIAC

Top Trades for Thu, 23 Jan 2020 13:36 – VIAC

So that's 2 years of picking VIAC.  They had that big spike early last year and we cashed out and then we started buying again in March – after the drop below $40.  I think $30 is just silly for these guys (obviously).

GoPro leaps as Wedbush observes multiple growth drivers

GPRO +7.79%Now!

• GoPro (GPRO +7.8%) shares rise after Wedbush upgrades the stock to Outperform from Neutral citing multiple growth opportunities.
• "There are multiple gross margin expansion drivers in place, including GoPro's ongoing shift toward DTC sales domestically, growth of its high-margin subscription service, and a product mix-shift toward high-end hardware," writes analyst Michael Pachter. He believes GoPro's stand-out performance in overcoming supply chain challenges will continue into 2022.
• Pachter notes upcoming catalysts that include the resumption of international travel and GoPro's expansion into "derivative products with specialized use cases to expand its user base" that should incur only minimal R&D and manufacturing costs.
• Of the analysts covering GoPro, 2 hold Buy-equivalent ratings, 3 are Neutral, and 1 is Bearish.

We used to play GPRO and I do still like them.  Their camera tech is fantastic and that's why I like them (high-end professional cameras), not so much the sports and drone markets.  They are up to $1.6Bn these days and finally making profits:  3.3M last Q3, 44.4M last Q4, -10.2M in Q1, 17M in Q2 and $312M in Q3 – so Q3 was pretty good.  Why?  

• GoPro says it generated $166M of free cash flow due largely to continued camera mix shift to the high-end and execution of the company's direct-to-consumer, subscription-centric strategy.

Yes, because of why I liked them!  

Submitted on 2018/08/02 at 3:49 pm

Earnings/Soma – I like GPRO down here as they beat last Q and sold 30M cameras (since 2009) and Jackie bought a knock-off and declared it total crap and then got the Hero and is thrilled with it.  They are pulling in $1Bn and most of their losses have been over R&D misses like drone systems.  They will still lose money, but probably less than 0.25/share and that's pretty good progress.  What I like about GPRO isn't the mass-market cameras but their $50,000 Professional Systems, where they are the king of the market by a wide margin.  

Submitted on 2018/11/19 at 3:50 pm

• GPRO – Let's buy 40 more of the 2021 $5 calls for $1.90 ($7,600) 

Submitted on 2020/03/23 at 10:59 am

$10K/Jeddah – I'd put $400 into 1,000 shares of FTR (0.40 – now 0.26) – just in case!  Another $360 in NAK (0.36 – now 0.51) as you can afford to gamble a bit when you are young.  Then there's F at $4.14 (now $5), X at $5.76 (now $6.36), HOV at $6.85 (now $9.84), CLF at $3.38 (now $3.76), SPWR at $5.93 (now $6.35), IMAX at $10.50 (now $10.09), GPRO at $2.51 (now $2.71), BBBY at $4.70 (now $4.63)… By sticking to things that are cheap, he can afford to buy 10% more whenever he gets $1,000 and all those stocks can double or triple in a recovery and not likely to lose more than 1/2 if they avoid BK, which would make the drip investing more powerful.

Submitted on 2020/04/16 at 11:31 am

GPRO/Lionel – I know we had it in the old LTP but I don't think we've played it in the new portfolios though I know I just told Jeddah I liked them at $2.51 for a small portfolio.   I have no idea what that quote is but, if you are looking at the 2022 $1.50/$4 bull call spread for $1.55 I think I'd rather go for the $2 ($1.30)/4 (0.75) bull call spread at 0.55 as you can buy 3 times more for the same price with the same target and I don't see the point in selling puts – it's just a cheap chance at nearly a triple.  

Submitted on 2020/04/16 at 1:48 pm

GPRO/Potter – That's not the point, the point is that GPRO is a stock we looked at before, they are a solid company that has real sales (no profits) and $2.50 is $400M and they were on track to make over $50M by next year and, while this interrupts their plans – I doubt it permanently derails them so I would buy them at $2.50 and DD at $1.25 and DD again at 0.67 as I think it's a fair gamble down here if other people don't want them.   Even so, I was simply looking at paying 0.55 for a $2 spread that's 0.50 in the money so it pays almost 3:1 if GPRO fails to go BK.   Worth a gamble.

I think we can play GPRO in our Future is Now Portfolio as follows:

• Sell 10 GPRO 2024 $10 puts for $3 ($3,000) 
• Buy 25 GPRO 2024 $7 calls for $6 ($15,000) 
• Sell 25 GPRO 2024 $12 calls for $4 ($10,000) 

That's net $2,000 on the $12,500 spread that's almost entirely in the money to start.  Upside potential is $10,500 (525%) and worst-case is having to own 1,000 shares at net $12, which is just a bit over the current price.  Since that's not a bad-sounding thing, the whole trade is excellent!  

Thor's acquisitions, supply chain execution lead to double beat

 

THO +1.80%

 

 

Dec. 08, 2021 9:51 AM ET

• Thor Industries (THO +0.6%) after reporting an earnings beat and 55.5% revenue growth driven by higher sales in North America following recent acquisitions.
• By segment: North American Towable RV segment (+61%); North American Motorized RV segment (+87%); European RV segment (+5%). The addition of Tiffin Group accounted for 47% of the increase in increase in North American Motorized RV net sales.
• Consolidated gross profit margin increased 170 bps to 16.6% primarily driven by the increase in net sales, a reduction in sales discounts since the prior-year period and selective net selling price increases.
• "It seems the market focuses on the supply chain and labor challenges that our industry is facing right now more than it does our performance in the face of those challenges, but our performance has been consistent despite those challenges," commented CEO Bob Martin.
• The company's 88,100 RV deliveries outpaced the RV industry's growth rate of shipments. Global order backlog increased to more than $18B, reaffirming Thor's view that the dealer restocking process could possibly extend into calendar 2023.
• Read what Thor's outlook for the full 2022 fiscal year here.

There's a hidden gem.  THO is in a pretty good trend as people are using RV's to live in.  They are on a great growth path and $720M in profits is over 10% of their $6Bn market cap at $106.  They are super-attractive over the option prices too so, for the Future is Now Portfolio (where no one can afford a proper home anymore), let's:

• Sell 5 THO 2024 $100 puts for $22 ($11,000)
• Buy 10 THO 2024 $100 calls for $30 ($30,000)
• Sell 10 THO 2024 $130 calls for $17.50 ($17,500)

That's net $1,500 on the $30,000 spread that's $8,500 in the money to start.  Upside potential at $130 is $28,500 (1,900%) and the worst case is owning 500 shares at net $103.  

• Thor EPS beats by $1.15, beats on revenue
• THOR industries acquires elkhart composites, inc., maker of elkboard polypropylene-based composite materials for the RV industry
• Recreational vehicle stocks gains as reports indicate 2022 could be another strong year
• Thor Industries Is One Of The Best Buffett 'Fat Pitches' On Wall Street

Old favorite:

Cleveland Cliffs key person buys 50,000 shares worth $990K

CLF +2.29%Dec. 02, 2021 3:15 PM ET15 Comments

• Cleveland Cliffs (CLF +2.4%) Chairman, President & CEO, Lourenco Goncalves bought 50,000 shares at $19.76 on December 1.
• Total transaction value being ~$990K.
• Stock was rated Outperform at Wolfe on steel pricing strength.
• Stock has gained about 66% over the last one year and currently trades at $20.16.
• A comparative rating against peers

 

• Recent Bullish commentary on the stock: 'Cleveland-Cliffs: Back Up The Truck, The Journey Is Going To Be Long'

Let's make them a new favorite again in the LTP as $20 is still under $10Bn in market cap and last year they lost $122M but the last 4Qs have been $256M, $288M, $1,197M and $1,775M so back on a path for a solid $3Bn+ which makes $10Bn a no-brainer for our LTP:

• Sell 20 CLF 2024 $20 puts for $6 ($12,000) 
• Buy 50 CLF 2024 $15 calls for $8.75 ($43,750) 
• Sell 50 CLF 2024 $22 calls for $5.75 ($28,750) 

That is net $3,000 on the $35,000 spread that's $25,000 in the money to start with $32,000 (1,066%) upside potential at $22.  Worst case is we own 2,000 shares at net $21.50 – 7.5% above the current price.  

I love TD:

TD Bank raises quarterly dividend by ~13%; to buy back 50M shares

TD -0.46%Dec. 02, 2021 6:46 AM ET5 Comments

• TD Bank (NYSE:TD) declares CAD 0.89/share quarterly dividend, 12.7% increase from prior dividend of CAD 0.79.
• Forward yield 3.87%
• Payable Jan. 31; for shareholders of record Jan. 10; ex-div Jan. 7.
• See TD's dividend grades vs. peers CM, RY, USB, BNS and BMO:
• The company also announced today that, subject to the approval of OSFI and the Toronto Stock Exchange ("TSX"), it intends to launch a Normal Course Issuer Bid ("NCIB") permitting the purchase for cancellation of up to 50 million of its common shares, representing approximately 2.7% of TD's issued and outstanding common shares as at October 31, 2021.
• As at October 31, 2021, the Bank's Common Equity Tier 1, Tier 1, Total Capital and Leverage ratios were 15.19%, 16.45%, 19.12% and 4.77%, respectively.
• Now read: Canadian Imperial Bank raises quarterly dividend by ~10%; shares buyback
• Royal Bank of Canada to repurchase 45M shares, boosts dividend by 11%;
• Bank of Nova Scotia stock gains after Q4 earnings beat, dividend hike.
• See TD Dividend Scorecard, Yield Chart, & Dividend Growth.

$74.50 is $130Bn and these guys are making $14Bn a year and made $12Bn last year so rock-steady income stream.  They have long-term options now and only a 3.5% dividend ($2.55), so not worth owning the stock but, for the LTP, let's:

• Sell 10 TD 2024 $70 puts for $8.50 ($8,500) 
• Buy 25 TD 2024 $60 calls for $15 ($37,500) 
• Sell 25 TD 2024 $75 calls for $7.50 ($18,750) 
• Sell 5 TD April $75 calls for $3 ($1,500) 

That's net $8,750 on the $37,500 spread so we have $28,750 of upside potential where we are now and we have 7 more quarters to sell calls as well to knock down the basis.  Our risk is owning 1,000 shares at net $68.75 – and we'd be happy to do that anyway. 

We had a busy morning as we announced our 2022 Trade of the Year (officially) as IBM.  

In setting up the trade for the Money Talk show tonight (7pm, BNN), I came up with a more conservative strategy that still has kick-ass returns.  While reviewing our Money Talk Portfolio, we had several more trade ideas that are all Top Trade worthy.  

I know it's annoying that sometimes we don't put out Top Trade Alerts for weeks but, when the market gives us a sale, THEN we have plenty to talk about:

VIAC – I am as dumbfounded as to how cheap Viacom is as I was about HPQ last quarter.  You would think they are going bankrupt but no, they are making $2.5Bn a year yet, at $31, you can buy the whole company for $20Bn – and I predict someone will.  When that happens, we collect sooner so we're going to close the current spread for a net $5,300 loss and add back the following:

• Sell 10 VIAC 2024 $30 puts for $6 ($6,000)
• Buy 40 VIAC 2024 $25 calls for $10 ($40,000) 
• Sell 40 VIAC 2024 $40 calls for $5 ($20,000) 

That's net $14,000 on the $60,000 spread that's $24,000 in the money to start and, if VIAC gets bought for $40+, we will get a quick cash out on our spread with the full $46,000 (328%) upside potential realized.  That would make up for the $5,300 loss quite nicely!    

Intel (INTC) was our Trade of the Year for 2021 and it did so well we cashed it out in April but now it's come back down and we'd like to add it back to our Money Talk Portfolio.  They did not make the cut because 2022 is an investment year for them but, longer-term, we're very exited to own the stock under $50. 

• Sell 10 INTC 2024 $45 puts for $7 ($7,000) 
• Buy 20 INTC 2024 $45 calls for $11 ($22,000)
• Sell 20 INTC 2024 $55 calls for $7 ($14,000) 

Here we are laying out net $1,000 in cash and promising to buy 1,000 shares of INTC for $45.  If we lose all of the spread value and have to buy the stock, our net entry would be $46, which is still $3.20 (6.5%) below the current price.  It's a little aggressive but I certainly don't fear owning 1,000 shares of Intel for the long haul. It's a $20,000 spread so the upside potential is $19,000 for a 1,900% return if all goes well and, as we're starting out over $9,000 in the money – it's already going well!  INTC has to fall 10% before you lose money on the spread – that's a great way to start! 

Altria (MO) made $4.5Bn last year so they are pretty recession-proof at $80Bn and this year they are making more like $8Bn.  The catalyst we are waiting for is full legalization of marijuana but we don't know if that will happen next year – so they remain a runner up but a fabulous play at $42.50 as such: 

• Sell 5 MO 2024 $40 puts for $8 ($4,000)
• Buy 15 MO 2024 $40 calls for $6.60 ($9,900)
• Sell 15 MO 2024 $50 calls for $3 ($4,500)

That's net $1,400 on the $15,000 spread so we have $13,600 (971%) of upside potential against our cash outlay and we are promising to buy 500 shares of MO at net $42.80, which is still 13% below the current price – that's our worst case, which isn't bad, is it?

Walgreens (WBA) has been a favorite of mine all year at this level.  They were completing a turnaround when they were rudely interrupted by the virus last year and now it's the place we'll be getting our booster shots in the states, which should be great for business – unless they are forced to shut down again – that's the big risk here and why they are a runner -up.  Still, I think $44.80 is ridiculously cheap for them so we'll add them as well:

• Sell 5 WBA 2024 $40 puts for $10.50 ($5,250)
• Buy 15 WBA 2024 $40 calls for $9.80 ($14,700)
• Sell 15 WBA 2024 $52.50 calls for $4 ($6,000)

Here we're spending net $3,450 on the $18,750 spread so we have $15,300 (443%) upside potential at $52.50 and our worst case is owning 500 shares for net $46.90 – a bit more than the current price.  Here I did not feel comfortable committing to owning too many shares so we spent more cash to set up the spread.   Never assume all your trades will go your way! 

And that brings us to our 2022 Trade of the Year which has to be IBM (again) as we only sold it back in September because it had already made us a ton of money.  Now we are being given a chance to re-enter the stock, not only at a ridiculously low price – but while the option prices are in our favor due to all the volatility!  

IBM acquired Red Hat in October of 2018 and 2021 was supposed to be the year it began paying off but that's been delayed by Covid though the company did make $5.6Bn last year and is on the way to making $8.6Bn in 2021 and over $9Bn next year yet, at $117.10, you can buy the whole company for $106Bn – just over 10 times earnings – for IBM!   They are big on cloud computing and leaders in Quantum Computing and there's still Watson creeping into our everyday lives – this is a great company to hold for the long-term but with near-term catalysts we like to see for a trade of the year.  We also think $115 is a very strong bottom – another huge plus:

• Sell 10 IBM 2024 $100 puts at $12.50 ($12,500)
• Buy 20 IBM 2024 $100 calls at $22.50 ($45,000)
• Sell 20 IBM 2024 $115 calls at $15 ($30,000)

That's net $2,500 on the $30,000 spread so there's $27,500 (1,100%) potential upside to the cash outlay.  Our worst-case scenario is  owning 1,000 shares of IBM at net $102.50, which is 12.5% below the current price and, keep in mind, this trade is starting out 100% in the money and you only lose if IBM goes below $102.50 – which would be insanely cheap.  All IBM has to do is not go lower than it is now and you make $27,500 in profits – now THAT is a Trade of the Year! 

There's 4 brand new trade ideas that have the potential to make another $75,400 over the next two years.

So, out of our Trade of the Year finalists, INTC, IBM and GOLD have all held up pretty well the last few days – that's a good sign.  

I think, as an overall trade (with great spread dynamics), INTC is the winner but it's really a two-year play due to their current investment cycle and profits will be off 1/3 this year so Q/Q comps will suck and traders are stupid so there's still a chance they trade lower – even if undeserved.  

IBM, I think, is going to show positive trends in 2022 so the catalyst is better earnings off a stupidly cheap floor.  IBM hasn't spend more than a few weeks below $110 since 2010 as that's about their 11x line.  Generally IBM is more like $120-140 and we can make a conservative spread there I can be very happy with.

In the MTP, we already have GOLD, SPWR and VIAC.  I'd go with T if not for the split (too complicated) so MO and WBA I guess are the other runner-ups.  WBA made $457M last year and MO made $4.5Bn (people gotta smoke) and let's not forget their earnings were depressed due to that JUUL disaster ($12.8Bn down the drain) they stepped into.  If pot is fully legalized, they will take over that industry too and they already own 45% of CRON, which they bought for $1.8Bn and they are down about 50% on that.  

I guess WBA is not as safe as MO but they only just started doing vaccinations and that will be a huge business in 2022 and was our original reason for liking them long-term, as is their 10x valuation.  

So I guess all 4 will be additions, just in varying degrees but IBM will end up being the Trade of the Year as it's the safest bet with the best chance of success.  

IBM – Another former Stock of the Year.  Also approaching 10x earnings at $115, which is just over $100Bn in market cap and IBM is good for about $9Bn/yr in earnings but they also have pricing power in an inflationary environment.  They are just finishing their 3-year digestion of Red Hat and now we should begin to see the benefits of this combination moving forward.  IBM has very little downside at this price and the upside could be well over $150 in two years so great risk/reward ratio on them.  My play would be:

• Sell 5 IBM 2024 $100 puts for $12.50 ($6,250)
• Buy 15 IBM 2024 $110 calls for $16 ($24,000) 
• Sell 15 IBM 2024 $125 calls for $10 ($15,000) 

That's net $2,750 on the $22,500 spread so $19,750 (718%) upside potential if they gain $10 in two years is a pretty obtainable goal.  Downside is being forced to own 500 shares at net $105.50, which is almost 10% below the current price and, long-term, I certaintly don't mind owning IBM in our portfolio.

That was from Friday's close.  At the moment, the 2024 $100 puts are $11.45 so I'd sell the $105 puts for $15 instead ($7,500).  The $100 calls are now $22.33 and the $115 calls are $16 for net $6.33 ($9,495) so now we have a $22,500 spread for $1,995 so deeper in the money with $20,005 (1,002%) upside potential makes it a lovely trade of the year.  

That's for the MTP, for the LTP, same trade but with 20 short puts ($30,000) and 50 of the spreads ($31,650) and now we are spending net $1,650 on the $75,000 spread but we need to be damned sure we REALLY want to own 2,000 shares of IBM for $105.  Hmmmm, yes, I believe we do!  

Keep in mind this spread is CURRENTLY 100% in the money and our worst-case is owning IBM for a bit over $105 so it's simply a question of how much IBM are you willing to own to determine what size spread you can take.  As you know, I certainly don't look at this as a risk of $210,000 since it is incredibly unlikely IBM goes below $75, which is the lows of this century.  At $75, we're down about $60,000 and, of course, we could roll or whatever so the risk/reward is good and the likelihood of success is great – what else could you want from a Trade of the Year? 

Two Trade Ideas from this morning's PSW Report:

BioNTech (who co-developed the PFE vaccine) is a similar company to MRNA and it's also popping, Yodi had the idea back on Nov 2nd and we turned it into a trade in our Live Member chat Room:

BNTX/Yodi – Hard to say whether or not they are a one-trick pony but one trick is all they need as we'll be getting Covid vaccines every year, it looks like.  They are not wasting this opportunity and are developing 20 more vaccines with potential to launch over the next 5 years.  They are also working on cancer therapies – obviously huge money IF they can get a winner.   Overall, BNTX is as likely as MRNA to succeed over the long haul and MRNA has a $136Bn valuation on $20Bn in sales with $12Bn in profit while BNTX gets less respect with a $66Bn valuation, $16Bn in sales and $9Bn in profits.  Since their burn rate in 2019 was only $279M, their cash ($8.5Bn) with another $18Bn coming means they will be able to work on whatever they want for quite a long time.   

So I think Yodi has found a worthwhile investment but, unfortunately, it's a pricey stock so it only fits in our LTP at $283.50.  In the LTP, let's:

• Sell 5 BNTX 2024 $200 puts for $35 ($17,500) 
• Buy 10 BNTX 2024 $300 calls at $80 ($80,000)
• Sell 10 BNTX 2024 $400 calls at $54 ($54,000) 

That's net $8,500 on the $100,000 spread so you have to love the upside potential of $91,500 (1,076%) but we're not in the money – it's a speculative bet that they do find something else to sell over the next 12 months, otherwise our investing premise is dead.  So let's remember to keep an eye on these and hopefully Pharm will have some color commentary on the subject when he checks in.  

I'm pointing this out because, despite the move up, it's still good for a new trade as the net on the spread is still only $14,250 out of a potential $100,000 so there's still $85,750 (600%) more to gain, even if you missed the first $5,750 worth of gains our Members are already enjoying in their first month.  

Also, I don't know if you noticed it but people have been flying all year without any major incidents yet you can buy Delta Airlines (DAL) for $24Bn at $37.50 and Delta made almost $5Bn in 2019.  They lost $12.4Bn in 2020 and they are losing $3Bn this year but next year should be back to profits and, long-term, we're not going to stop flying – even if we all have to wear space suits on the plane.  

Let's take a poke at DAL in our Future is Now Portfolio:

• Sell 5 DAL 2024 $40 puts for $10 ($5,000) 
• Buy 20 DAL 2024 $40 calls for $8.40 ($16,800)
• Sell 20 DAL 2024 $55 calls for $5 ($10,000) 

I'm being aggressive with the short puts because this trade will either begin working by Q1 or we're out anyway.  It's a $30,000 spread at net $1,800 so there's a $28,200 (1,566%) upside potential at $55.  Worst case is we're forced to own 500 shares of DAL at net $43.60 but we'll pull the plug long before that happens.

Not much excitement today so a good time to review.

So far, the first 3 quarters of 2020 have been very successful with 36 (94.7%) of our 38 Top Trade Ideas already winners for $591,527 in profits – no wonder it's our most popular feature!  It's important to note that these are nice, simple trades we do on mostly blue chip stocks and we don't even adjust them – that's how we can do things if we simply pick strong Fundamentals and that's what our Top Trades are all about – spreads that we feel are most likely to produce winners over time.  

Top Trade Reviews are very useful when you are looking for trade ideas to fill in portfolio gaps.  Looking at the last review, I see T is cheap again, INTC is down, WBA cheap, and VIAC still cheap.  Going back in time and getting back into stocks that have performed in the past is a great way to fill in the gaps in your portfolio.  Just yesterday, in fact, we added INTC back into our Long-Term Portfolio (and it was a Top Trade Alert – again!).

We were very cautious in Q4 of last year so I'll be curious to see what we picked.  We had lightened up our portfolios into the quarter, much as we did this year as well.  By the way, I know our Top Trade Picks are erratic because we don't let an arbitrary schedule like "every week" dictate when we find a great pick.  We're not getting 94.7% right because we take the best of whatever we see on a Friday.  WHEN we see a great deal – THEN we make it a Top Trade Alert – if there are no good trades in a month – so be it.  If there are four in one day – that's fine too.

Top Trades for Thu, 01 Oct 2020 13:39 – EPD

Good little company with a nice dividend.  I like it!   We already have ET in the Dividend Portfolio but I think there's room for EPD and their $1.78 dividend so let's go for the following:

• Buy 1,000 shares EPD at $15.92 ($15,920) 
• Sell 10 EPD 2023 $13 puts for $2.85 ($2,850)
• Sell 10 EPD 2023 $15 calls for $3 ($3,000) 

That's net $10,070 on the $15,000 spread so about 50% upside and the $1.78 dividend is 17.67% while you wait!  Worst case is we get to own 2,000 shares at an average of $11.53, which is a 27.5% discount to the current price.  That's the worst case – and we're not even counting the $3.50(ish) you will collect in dividends over 2 years.  Aren't options fun?

We are way over target on this one and will likely get called away at $15,000 in Jan 2023 for a $4,930 profit and we just collected an 0.45 ($450) dividend on the 28th and that was our 5th so $2,250 in dividends plus $4,930 in profit is $7,180 in returns so far for a 71.3% profit in just over a year.  Who says dividend stocks are boring?  

Top Trades for Thu, 08 Oct 2020 08:44 – JETS and Future Is Now Portfolio Review

So that makes a 2023 spread on JETS kind of interesting with Trump promising to save the airlines and the Democrats trying to save the airlines.  Eventually, hopefully, SOMEONE will actually save the airlines.  For a trade in our Future is Now Portfolo, I'd go for:

• Sell 10 JETS 2023 $15 puts for $4.40 ($4,400) 
• Buy 15 JETS 2023 $15 calls for $6.50 ($9,750) 
• Sell 15 JETS 2023 $25 calls for $3.65 ($5,475) 

That's a net $125 credit on the $15,000 spread so, if all goes well, it will make $15,125 (12,100%) if JETS is back over $25 in 2023.  Worst case is owning 1,000 shares at $15 (less the $125 credit) and we can always sell calls to lower that risk if we lose confidence but it's a nice, optimistic bet on things getting back to normal – one day.  Ordinary margin requirements on ETFs are pretty low, just $841 for this one so it's a very margin-efficient trade as well! 

We were way over target and now but, at the moment, the short puts are just 0.55 ($55) and the $15 ($8.55)/25 ($2.35) bull call spread is net $6,20 ($9,300) for net $9,245, a $9,370 (7,496%) gain off our original credit.  Aren't options fun?  

Top Trades for Mon, 12 Oct 2020 06:53 – IBM

Of course you can own IBM for $100 by selling the 2023 $100 puts for $11.50 so, if we consider that free money, then our trade can be:

• Sell 5 IBM 2023 $100 puts for $11.50 ($5,750) 
• Buy 10 IBM 2023 $110 calls for $26 ($26,000)
• Sell 10 IBM 2023 $125 calls for $19 ($19,000) 

That's net $1,250 on a $15,000 spread so there's $13,750 (1,100%) upside potential if IBM stays over $125 and, if it doesn't, we should be thrilled to invest more money in rolling down the short calls to the $100s for $5 ($5,000) or less or the $90s for $10 or less ($10,000) and then we'd be in a $35,000 spread for net $11,250 with $23,750 upside potential if we make it back to $125 but our break-even would be $101.25 – that's a risk I could certainly live with!

That's what makes a great trade, the downside to this one is owning 500 shares of IBM for net $102.50.  I'd LOVE to own 500 shares of IBM at $102.50 so there's nothing about this trade that worries me.  I'll almost be disappointed if it goes straight up and all we make is 1,100%.  Meanwhile, it's a nice, margin-efficient trade as the ordinary margin is just $4,028 as it's more than 20% out of the money on the short put side.

We don't have IBM in the LTP so let's add this one but with 10 short puts and 20 long spreads. 

Be aware that they are spinning off so these options will get messy down the road but, like SPWR, I'm not afraid of a good decision affecting our position.

We just sent out a new Top Trade Alert for IBM yesterday as we were excited to get back in at $125.  We cashed out this spread already but, even if you didn't, the short puts are down to $5.20 ($2,600, and no way I would pay that for them!) and the $110 ($19.50)/125 ($10.50) spread is net $9 ($9,000) for net $6,400 which is up $5,150 (412%) but this is a $15,000 spread that's in the money so it's actually good for a new trade with $9,850 (191%) upside potential.  

Top Trades for Wed, 14 Oct 2020 10:06 – GS

There's been some spillover from Main Street to Wall Street as Bank of America's (BAC) profits are down 16% in today's report and Wells Fargo's (WFC) are down 56% but Goldman Sachs' profits almost doubled expectation at $9.68 per $215 share in a single quarter – very impressive.  We don't have much banking in the LTP and GS is a good one (well, evil, but good earnings) so let's add them with the following trade:

• Sell 5 GS 2023 $165 puts for $20 ($10,000) 
• Buy 10 GS 2023 $170 calls for $60 ($60,000)
• Sell 10 GS 2023 $210 calls for $40 ($40,000) 

That's net $10,000 on the $40,000 spread that's 100% in the money to start and all GS has to do is not be lower than it is today in 2.25 years and we make $30,000 (300%) – aren't options fun?  Our worst-case scenario is owning 500 shares at net $185, 15% lower than the current price and the ordinary margin requirement is just $5,718 – so it's a very margin-efficient way to make $30,000 too!

This one is ridiculously in the money – I'm sorry we didn't buy a lot more.   The $165 puts are down to $2.80 ($1,400) and the spread is about $39 ($39,000) so net $37,600 is still up 276% if you cash in early – which you should because, obviously, we can do a lot more with $37,600 than spend a year making $2,400 (6.3%).  

That's part of the less of the Top Trade Alerts.  These are "set and forget" trade ideas that consistently make tremendous returns, very similar to our Long-Term Portfolio picks (often the same).  Understanding that you can consistently make well over 100% returns on cash will hopefully help you to think clearly about the use of cash and margin in your portfolio and not waste opportunities sitting on positions with low potential returns.  

And what was the "risk" to the above trade?  The worst case is we'd be forced to buy 500 shares of Goldman Sachs at $165 per share ($82,500) but FUNDAMENTALLY, we didn't consider that to be a bad thing because GS was ridiculously undevalued.  Clearly the stock has proven that as it's now double our target a full year ahead of schedule.

Top Trades for Thu, 22 Oct 2020 09:44 – CHL

If T is making money, I bet China Mobile (CHL) is making money as they have 950M subscribers and AT&T has around 100M yet T is valued 50% more than CHL, which is trading at 7.6x earnings.  We already have CHL stock in our Dividend Portfolio, because it pays $1.97 (6%) per $32.65 share and we have 1,000 shares so we're going to promise to double down at $30 by selling 10 2023 $30 puts for $5.50.  That would net us into 1,000 more shares at $24.50.

You can just sell the puts for $5,500 to initiate a long position but, in our Long-Term Portfolio, we're going to also buy 30 of the 2023 $27.50 ($6)/35 ($3) bull call spreads for net $3 ($9,000) and that will put us in the $22,500 spread for net $3,500 and we're sure to be able to make that up selling a few calls along the way.  The ordinary margin on the short puts is $1,444 so it's a super-efficient play as well.  If all goes well and CHL is over $35 in Jan, 2023, then the profit on the spread will be $19,000 (542%).

We're going to call this a loss because CHL no longer trades in the US due to whatever BS our Government and China are going through.  We can't collect on the options (which are technically in the money) but we can't be assigned either as the brokers can't trade the stock so, unless the rules change again by next January, this is a $3,500 loss.  

Top Trades for Tue, 10 Nov 2020 11:50 – IBM

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!

So, a month later IBM was still cheap so I made it a Top Trade again.  IBM finished the year at $123.87 so the short calls made all of 0.13 ($65) but a consistent selling strategy would have done you well this year on IBM, which is back to $125 now.  The $100 puts are $5.20 ($2,600) and the $110 ($19.50)/135 ($6.75) bull call spread is net $19,125 so net $16,590 is up $13,590 (453%) for the year but it's a $37,500 spread so I'd stick with it with $20,550 (123%) left to gain.

See – only one trade idea for all of November but it made 453% – quality over quantity!  

Top Trades for Wed, 02 Dec 2020 10:50 – T

Of course 45.8% wouldn't make it the Trade of the Year so we'd use a spread instead, probably 50 of the 2023 $27 ($3.75)/32 ($1.85) bull call spreads at net $1.90 ($9,500) against 20 of the short 2023 $27 puts ($8,000) for net $1,500 on the $25,000 spread that's 40% in the money to start.  No dividend but the upside at $32 is $23,500 (1,566%) and that's right in our Trade of the Year territory but I'm not sure VZ getting an upgrade is enough of a catalyst to make T a clear winner… yet. 

T has has a nasty sell-off since the spring and is back down to $25.37, where we love them as a new trade.  The 2023 $27 puts are now $4.60 ($9,200) and the $27 ($1.30)/32 (0.50) bull call spread is now net 0.80 ($4,000) so net -$5,200 is a $6,700 ( 466%) loss so far and NOT good for a new trade as the target of the bull call spread is too aggressive for a year.  

As a new spread, I'm fine with those short puts (or the 2024 $27 puts are $6 paired with the 2024 $23 ($3.75)/27 ($2.15) bull call spread at just net $1.60).  So, OFFICIALLY, we would roll this spread to that one and gain $2,800 on the put roll while spending $4,000 for the bull spread which would put us in the 2024 spread for a total of $3,700 with $16,300 (440%) upside potential.  Still, we'll call it a loss for now.

That's another thing I love about options, the ability to adjust and "roll out of trouble".  If a stock falls drasitcally on you, it's more difficult but that's another reason we like to stick to blue chips – they rarely fall more than 20% in any 6-month period and we have plenty of time to adjust.

Top Trades for Wed, 16 Dec 2020 12:45 – MO

MO dividend is a very fat 8.16% now at $3.44 per $42.87 share.  As a new trade, you can:

• Buy 1,000 shares of MO for $42.87 ($42,870)
• Sell 10 MO 2023 $35 puts for $4.50 ($4,500) 
• Sell 10 MO 2023 $40 calls for $6.25 ($6,250)

That's net $32,120 and the spread pays back $40,000 if called away in two years with a $7,880 (24.5%) profit plus the $3,440 dividend x 2 is another $6,880 (21.4%) so a very nice way to tie up $32,120 to make $14,760 while we wait for MO to get into the hemp/cannabis space.  

Another one that looked better last week.  Despite taking a huge tumble, we're still over target and this was a stock play for dividends, not so much gains so anything over $40 is a complete win.  At the moment, the stock is $44,050 and the short puts are $2.60 ($2,600) and the short calls are $5.85 ($5,850) for net $35,600 and we've collected $3,480 in dividens so far (next one is due soon) so net net $39,080 is up $6,960 (21.6%) in our first year – a bit higher with the next dividend.  Again, these are very nice returns for very boring blue-chip stocks.  

Top Trades for Wed, 30 Dec 2020 12:23 – GILD

GILD is back where we like them and we cashed them out of the LTP so, for the LTP, let's get back in with:

• Sell 5 GILD 2023 $50 puts for $8 ($4,000)
• Buy 10 GILD 2023 $50 calls for $12.80 ($12,800)
• Sell 10 GILD 2023 $65 calls for $6.75 ($6,750) 

That's net $2,050 on the $15,000 spread that's $7,000 in the money to start with an upside potential of $12,950 (631%) if GILD can power up to $65 over the next two years.  Worst-case is you own 500 shares at net $60.10 – because we sold aggressive short puts but, hopefully, GILD will go even lower and we can double down on this one.

We ended 2020 with a good one as we're already over target, even after the recent sell-off.  The short puts are now $3 ($1,500) and the $50 ($16.25)/65 ($6.75) bull call spread is net $9,50 ($9,500) for net $8,000, which is up $5,950 (290%) in year one but it's a $15,000 spread, so worth keeping.  

So we have 7 winners out of 9 selections and 7 wins and 2 losses might get you to the World Series but it's only 77.7% so it's going to bring down our average as the total for 2020's Top Trades is 43 wins and 4 losses for a 91.4% success rate.  Our Q4 trade ideas made net $77,100 so our total gains for the year for 2020 Top Trade Alerts was $668,627 – certainly worth the price of a subscription, right?

Go to your Subscription settings and make sure we have your mobile number if you want to be texted our Top Trade Alerts – your Email too!    

2021 is already drawing to a close and it will soon be time to review our Q1 Alerts there as well.  I know these seem like boring trades but, as you can see, they do add up to very nice returns and these are not generally risky stocks – that's why we make them our Top Trades!  

We've actually been very busy this Q, selecting BIG, XRX, BYD, GOLD, HPQ, PFE, SPWR, VIAC, COIN, PFE, RKT, IBM and INTC so far.  Why so many?  Because the market pulled back a bit and earnings put things on sale.  As I said, we make our Top Trade selections when the time is right – NOT because we arbitrarily promise one trade a week – that would be stupid!  

Top Trade of the Year candidates are looking like T, VIAC, SPWR, GOLD, WBA, DIS, DOW, KHC, MO, IBM, RIO, BA, and FF.  I'm tempted to add TZA to that list!  

So who has the best 12-month catalyst aside from starting out undervalued and they also need to have a very sturdy floor around where they are now.  Then they need to have great options premiums so we can construct a very likely 300% return spread.  

T/Yodi – Not enough bang for the buck on the options.   RN makes a good point that the options will suffer on the spin-off.  Mostly I'm looking for a good catalyst to grab on to.

• AT&T has continued its seemingly never ending march lower. Losses have accelerated of late byway of a sharp 12% drop recently and are currently residing at only $24.13 a share as of 11/21/21.
• Operationally, it appears the company is actually in very good condition, with strong results in telephony, mobile adds and fiber additions.
• Capitulation may be near as the company has been dropping directly in the face of encouraging results and moves by management to refocus the company.

Since assuming the role of CEO in July of 2020, Mr. Stankey, in my opinion, has made numerous positive moves aimed at refocusing AT&T on the core business of connectivity and telephony.

Mr. Stankey has spent much of his time as CEO so far pruning non-core businesses away from the company. He has sold or wound down a large portion of the ancillary pieces of AT&T, highlighted by the Puerto Rican asset sale to Liberty Latin America (NASDAQ:LILA), among many others.

In addition, Mr. Stankey has rid AT&T of the Direct TV business via a deal with TPG Capital. Direct TV has long been a source of ridicule and distraction for the company and this deal gives AT&T 70% equity ownership of the new entity along with a $7.1 billion cash infusion, along with the ability to remove the steep revenue drops each quarter from the company's books.

 

In what appears to be the most transformative news, Mr. Stankey and the legendary John Malone in May of 2021 agreed to merge and spin off Discovery, Inc. (NASDAQ:DISCA) and WarnerMedia into a combined media powerhouse.

In conclusion, Mr. Stankey's actions since he became CEO certainly seem to indicate that he is in fact quite serious in his attempt to turn the page from the mistakes of the past and to refocus the company back to the core telephony and connectivity business.

Looking at purely the business results, since Mr. Stankey's appointment as CEO, the business has made significant strides in gaining back some of the ground lost to competition. In fact, in the last few quarters, AT&T has led the industry for wireless additions.

The AT&T of 2020 and the AT&T of mid-2022 will be two completely different organizations. Once the spin-off of WarnerMedia is completed in mid-2022, the company will be left with a clear corporate mandate from top down, to strive to be the most efficient and best telephone and internet provider in the business.

In addition to refocusing the management team, the company will have a vastly cleaner balance sheet. Management has indicated clearly that the debt balance is a very high priority and that deleveraging is a top priority for the company.

The structure of the future company looks like this idea does in fact have legs as post the WarnerMedia spin-off, AT&T looks to have roughly $166 billion in total short and long term debt. In Addition, AT&T expects to produce over $20 billion in free cash flow under its new structure ex Warner Media.

AT&T has indicated that the dividend, post spin-off would be set around 40-43% of free cash flow or around $8-8.6 billion. Using a midpoint of $8.3 billion in available free cash for the dividend and the current 7.14 billion shares outstanding, I come up with a dividend of $1.16 per share, indicating a 4.8% yield at a $24.13 price.

 

One must not forget that each share of AT&T you own will also grant you ownership in the new WarnerMedia company to be spun off. How these shares are valued has yet to be determined other than AT&T shareholders will own 71% of the newly combined company with Discovery.

The current valuation of AT&T is where the absurdity I referenced is reflected. The company as of today is valued at a PE ratio of 7.18 using 2021 estimates. The company is currently priced as if it will be filing for bankruptcy shortly.

Of course, the new WarnerMedia will not be valued at $0. The combined business is estimated to have produced over $28.2 billion in revenue and an estimated $6 billion in free cash flow in 2020.

Estimates of the equity value of the new WarnerMedia vary wildly but the consensus estimate is between $7-10 per share of value is to be spun off to shareholders. If this holds true, then at current valuations, AT&T post-merger is to be valued at between $14 and $17 per share.

This is absurd. EPS estimates have already been put together by the analyst community reflecting the spin off and AT&T is expected in 2022 to earn $3.20 per share. Using a mid-point of $15.50 price post spin, the company is potentially valued at a 4.84 PE ratio.

I can see no logical argument for that type of valuation for a company projected to continue growing at mid-single digits, with an improved balance sheet and no true threats to its overall business.

We didn't make a change last week, we did make changes in October that leave us very bullish as those short Jan calls are certain to go worthless so we're just letting the big spread ride for now and the Jan puts will just get rolled – I'm certainly fine with the 2024 short $25s.  No excuse not to have this stock in your portfolio and, on that basis alone, I still kind of like it for Trade of the Year. 

I can't back off $25 being a floor (even though we're below it) so the short 2024 $25 puts at $5 looks like free money to me.  So let's say we did this:

• Sell 15 T 2024 $25 puts for $5 ($7,500) 
• Buy 50 T 2024 $23 calls for $3.50 ($17,500)
• Sell 50 T 2024 $27 calls for $2 ($10,000) 

That is net $0 on the $20,000 spread that's $7,500 in the money at $24.50 and the worst case is owning 1,500 shares at net $25 with their $1.50(ish) dividend for the rest of your life – and that's before you sell more puts and calls to add to the income.  When the worst case sounds like a trade you'd want to make anyway – it's a good spread!