Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Top Trades for Thu, 21 Dec 2017 11:05 – BBBY and GNC

We had two nice opportunities in our Morning Post:

You can see the replay of the Webinar HERE and we had lots of fun discussions with plenty of actionable trades.  Sitting in CASH!!! is very exciting as we have nothing but opportunites in front of us and we're able to pick and choose our spots.   

One spot we chose not to pick was Bed Bath and Beyond (BBBY), who I said I liked but I hoped they would miss earnings and disappoint so we could initiate a trade at a cheaper price.  Well they did miss and now they are down 12.5% at $21.50, which brings their market cap down to $3Bn DESPITE earning 0.44 per share (vs 0.36 expected) or $63M on $3Bn in revenues.  Q4 is half the year for BBBY so 3 x $60M is $180M + another $180M is a super-conservative $360M with a p/e of less than 10 so the sell-off is ridiculous and we would love to add a trade here (though we're not rushing in in case they get cheaper).  At the moment I like:

  • Sell 10 BBBY 2020 $20 puts for $3.60 ($3,600) 
  • Buy 15 BBBY 2020 $15 calls for $9.50 ($14,250) 
  • Sell 15 BBBY 2020 $22.50 calls for $4.50 ($6,750) 

That works out to net $3,900 on the $11,250 spread so the upside potential at $22.50 is $7,350 (188%) if BBBY manages to get back over $22.50 in two years.  The ordinary margin on the short puts is just $1,783, so it's a super-efficient trade and your worst case is owning 1,000 shares of BBBY at net $23.90, so it's an aggressive trade as the stock is cheaper than that now but we feel it's a great value here BUT, keep in mind we think it will go a bit lower, maybe test $20 so we're probably only going to buy 1/3 now and see what happpens.    

Another huge sale is being throwin on GNC Holdings (GNC), who are handing out 14.6M shares of stock to holders of $99M worth of debt.  That values the stock at $6.78 but it dilutes current shareholders by 21%, so the stock is dropping 21% but I like paying off debt with stock instead of cash so the 20% drop in the stock, to $3.95, is a great buying opportunity.  In fact, you can still sell the 2020 $5 calls for $2 so, here's the play:

  • Buy 3,000 shares of GNC for $3.95 ($11,850) 
  • Sell 30 2020 $5 calls for $2 ($6,000) 
  • Sell 30 2020 $2 puts for $1.20 ($3,600) 

Here your net is $2,250 for 3,000 shares so 0.75/share and that means you would make $12,750 (566%) if called away at $5 in Jan, 2020.  Worst case is 3,000 more shares are assigned to you at $2 and then you average $1.375 per share ($8,250).  Risking $8,250 to make $12,750 is a pretty good risk/reward ratio and it's the kind of play you can make in an IRA, since the puts have such a low strike ($6,000 even at 100% margin).  As with BBY, it's a bit of a falling knife so these are just outlines for trades – we hope to get better prices as they bottom out.

 


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Comments are closed.