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Top Trades for Thu, 31 Aug 2017 13:36 – WSM

RH/Jet – Getting attractive but may get more so.  Their costs got out of control and ate their profits and, so far, there hasn't been any indication they've gotten things back on track.  $45 seems great at $1.5Bn but their best year was $91M in profits and you won't see that again until next decade so, unless they get back to $30, where we liked them, I'm not too interested in jumping in.

WSM at $46.16 ($4.6Bn) is more exciting to me as they have $5Bn in sales and $300M in profits so p/e 15 is already nice and they steadily grow it.  I wish they would spin off Pottery Barn but I guess it serves a purpose (get the college kids on the mailing list and upsell them).  

We don't have WSM so let's get back in in the LTP:

  • Sell 10 WSM 2019 $42.50 puts for $5.30 ($5,300) 
  • Buy 15 WSM 2019 $40 calls for $9.20 ($13,800) 
  • Sell 15 WSM 2019 $52.50 calls for $4 ($6,000) 

That's net $2,500 on the $11,250 spread so we have $8,750 (350%) upside potential at $52.50 and our worst case is owning 1,000 shares at net $45, which is about where it is now and that's aggressive but I really like the value down here – especially as a lot of people in Houston need furniture and furniture inventories are usually tight, which means there should be a nice drawdown over the next 6 months.  

Fed/Pharm – 2027 and they'll still have $2Tn?   As to Biotechs – LABU baby!  

  • Submitted on 2017/08/15 at 2:22 pm
  • LABU – I love them when they are cheap.  Let's spend $5 to roll the Dec $55 calls ($13.80) to the March $50 calls ($18.50) and DD (10 more) and sell 10 of the March $70 calls for $11.50 so we move from 10 $15 Dec spreads to 20 $20 spreads with 1/2 the short calls expiring in Dec and the rest of the trade in March.  Cost of the change is $5,000 + $7,000 so $12,000 and potential at $70 goes from $15,000 to $40,000 so $12,000 more to make up to $25,000 more is a good deal!  Now we can buy back the short Dec $45 puts for $5 ($2,500) and sell 8 of the March $50 puts for $10.90 ($8,720) so we pocket another $6,200 and now we only spend net $5,800 for $25,000 more upside on essentially the same spread!  
  • What, do you think we make 400% by accident?
  • Jeffl Submitted on 2017/08/15 at 2:55 pm
  • Phil/LABU -

    I don't ask lots of questions – still learning… but

    Why do you consider LABU cheap at $60 when it was $40 in June and $25 in November?  Just curious…

  • LABU/Jeff – It was super cheap because VRX took the whole sector down and crashed LABU, which is the 3x ultra-long Biotech.  That was, hopefully, a one-time thing and very unlikely to be repeated and, moving forward, there's a lot more upside to the sector than down.

What a day for /RBV7!  


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