Our Stock of the Year, YETI, is off to a poor start with earnings disappointment that has dropped them back to $35 pre-market. That’s well below our $40.85 entry on 12/3 so it’s a great time to jump in because the miss was due to a $38.4M recall in Q4 and, outside of that one-time issue, sales and profits were pretty much in-line with expectations. Adjusted 2023 earnings expectations are $2.12-2.23/share.
For the Earnings Portfolio, we can start a new spread:
- Sell 10 YETI 2025 $35 puts at $7.50 ($7,500)
- Buy 20 YETI 2025 $30 calls at $14.20 ($28,400)
- Sell 20 YETI 2025 $45 calls for $ 9.50 ($19,000)
That’s net $1,900 on the $30,000 spread with $28,100 (1,473%) upside potential back at $45 and we’re $8 ($16,000) in the money to start.
Remember, we’re bullish so we want to grab the $30 calls and we can wait a bit on selling the $45s to get a better price. As noted above, this is the 2nd 20% sell-off on the same news. Exactly the kind of over-reaction we look to jump on in the Earnings Portfolio.