Top Trade Alert – Aug 25 2023 – Overstock (OSTK)

    OSTK Aug 24 2023

    From this morning’s PSW Report:  

    There are still some earnings too – including Big Lots, which reminded me to look at Overstock (OSTK), who bought the assets of Bed, Bath and Beyond for $21.5M. While BBBY went Bankrupt, they were doing $11Bn in sales in 2022 (losing $700M) but OSTK, who had $2Bn in Sales and lost $35M, did not buy BBBY’s store leases or staff – they bought the name and the remaining merchandise and, most importantly, the customers!

    We didn’t buy them in June and I regretted that but, fortunately, traders already became impatient and have since sold the stock back to $24 and Jeffries just reported yesterday that 589,000 people downloaded the Bed Bath and Beyond app this month – 178% more than last year and Daily Active Users popped 91% over last year. 

    If OSTK can capture just 10% of BBBY’s business, that’s a 50% annual increase in their own business and I’m sure they are smart enough not to be trying to capture the unprofitable sales so, for our Long-Term Portfolio, let’s:  

      • 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. 

    In fact, we can roll to the $10 calls for $23,000 and, if $18,000 of that money comes from short call sales, then we’d be in the $10/35 spread ($125,000) for net $24,100 and our break-even would be $14.82 – that’s 38% below the current price.  I feel pretty good about the risk/reward for this trade!