T/Rookie – The 5G rollout will be very destabilizing for Telcos so I wouldn't have high expectations but I do like T whenever they are around $30 as that's $220Bn and they pretty reliably make $20Bn so a nice, comfortable p/e. At $2.04, the dividend is 6% so you might want to own the stock. I'd sell the 2021 $30 puts for $4.25 and consider that free money (as I don't mind owning T at $30) and if you buy the stock and sell the $28 calls for $2.75 you net in for $23/26.50 (if assigned), called away at $28 with a $5 profit (21.7%) and a $4.08 dividend (17.7%) for 39.4% profit over two years so there's a great case for owning T with the short puts and calls. As an option alternative, you can:
- Sell 10 T 2021 $30 puts for $4.20 ($4,200)
- Buy 20 T 2021 $25 for $5.80 ($11,600)
- Sell 20 T 2021 $32 calls for $1.90 ($3,800)
Here we're netting in for $3,600 and the same $5,700 in margin in hopes of getting $14,000 back for a profit of $10,400 (288%) or, at $30, $10,000 for a $6,400 profit (177%) and the worst case here is owning 1,000 shares at net $31.80 (assuming the entire bull call spread is wiped out).
So 1,000 shares of T with the short puts and calls would cost you $23,000 + $5,700 in margin and pay back $29,080 for a $6,060 gain (26.3% on cash) or the bull call spread uses $3,600 cash, $5,700 in margin and makes $6,400 at $30 up to a potential $10,400 at $32. I'd rather have the option spread…
DAN/Dawg – Nice call. AXL looks very good as they are a totally boring company that makes $300M but you can buy them for $1.8Bn at $16.50 – very nice. I love it when a company doesn't even need to grow to gain in price once the value is realized.
Year End 31st Dec | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | TTM | 2018E | 2019E | CAGR / Avg | |
$m | 2,931 | 3,207 | 3,696 | 3,903 | 3,948 | 6,266 | 7,310 | 7,252 | 7,242 | +16.4% | |
$m | 136.6 | 203.5 | 267.6 | 357.3 | 380.7 | 539.5 | 649.5 | +31.6% | |||
$m | 367.7 | 94.5 | 143 | 235.6 | 240.7 | 337.1 | 410.6 | 381.8 | 368.8 | -1.7% | |
$ | 4.87 | 1.23 | 1.85 | 3.02 | 3.06 | 3.01 | 3.38 | -9.2% | |||
$ | 5.05 | 1.55 | 1.85 | 3.03 | 3.33 | 4.27 | 3.94 | 3.25 | 3.10 | -3.3% | |
% | +160.8 | -69.3 | +19.3 | +64.0 | +10.1 | +28.1 | -7.8 | -23.8 | -4.84 | ||
x | 3.44 | 3.73 | 4.52 | 4.75 | |||||||
x | n/a | n/a | n/a | 1.03 | |||||||
Profitability |
They were down with Manufacturing in Nov/Dec and it was right after the bought MPG for what people thought was too much ($1.6Bn) in the first place in a deal that was 50% dillutive to AXL shareholders and now they have about $5Bn in debt to service ($200M a year at 4%) but MPG also has solid earnings and a low multiple so I think it's worth a toss. For the OOP, let's:
- Sell 15 AXL 2021 $15 puts for $2.50 ($3,750)
- Buy 30 AXL 2021 $13 calls at $6 ($18,000)
- Sell 30 AXL 2021 $20 calls for $2.60 ($7,800)
That's net $6,450 on the $21,000 spread so the upside potential at $20 is $14,550 (225%).
DB/Dawg – Too many issues and they are guilty of money laundering, market manipulation, etc. I wouldn't be so sure they get out of this.
TSLA/Albo – I'd be very careful at the moment as they have those bonds that convert soon if the stock is below $360 so you can expect all the stops to be pulled out to make that happen. If it does, THEN I want to be short.
As to your spread, you are selling the $350 calls and buying the $420s and collecting $20 so you win below $370 up to $20 but you can lose up to $50 at $420. Risk outweighs reward. If I were going to make that bet, I'd rather buy the 2021 $420 puts for $150 and sell the $340 puts for $100 so net $50 on the $80 spread and you don't lose until it's over $370 but still too risky with this silly stock.
F/Jeff – It's a solid strategy but my suggestion is, since you are doing a 1/2 entry, you could buy 500 shares at $8.21 and sell the 2021 $7 calls for $2 and the $10 puts for $2.55 so your net is $3.66 and you still get your dividends and, if called away at $7 that's up $2.34 (64%) and, if less than $10 you would be re-assigned shares at $10 and you just start the process again but your average – on anything over $7, is $6.83 into the next cycle – and you are still collecting your dividends.