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Top Trades for Tue, 17 Oct 2017 12:03 – IBM and WSM

IBM/Crs – Well IBM is not at $150 so there's not really an issue, is there?  It's only a 1/2 sale and the Jan $150s are now $3.10 and the March $160s are $1.40, so there's your 2x roll or the June $165s are $1.70 and by then you are in the money on the 2020 spread and you're fully covered anyway, so why are you worried at all?  If you think it's too tight and you are bullish, buy back 2 of the 5 covers and then you are more bullish into earnings.  If you have the ability to buy 10 of the $160/180 spreads after the short $150s go in the money, then I wouldn't worry about it as is.  

I like IBM into earnings, by the way, you can sell the 2020 $130 puts for $12 to net in for $118 and leave it at that or you can add the 2020 $130 ($22)/$160 ($9.25) bull call spread at $12.75 to net 0.75 on the $30 spread with $29.25 (3,900%) upside potential if IBM gains 10% in two years and your worst case is owning IBM at net $130.75.

Miners/Baron – I think gold and silver still have a good run in them but it's taking forever for inflation to kick in.  I would always go ABX first, as long as they are in the teens.  WPM is very cheap down here too.

 

WSM/Baron – That's an old favorite of ours.  I have been slow to get back in, even though they are back where we entered (and out as they got to $80) since I really don't like Pottery Barn but I do still like the company, making a barely growing $300M with a $4.3Bn market cap at $50.50, what's not to love? 

Anyway, we don't pay retail for the stock so we can add it back to the LTP:

  • Sell 10 WSM 2020 $40 puts for $5.40 ($5,400) 
  • Buy 20 WSM 2020 $47.50 calls for $9.20 ($18,400) 
  • Sell 20 WSM 2020 $57.50 calls for $6 ($12,000) 

That's net $1,000 on the $20,000 spread that's $5,000 in the money at $50 so the upside is $19,000 (1,900%) at $57.50 in 2 years and the downside is being a long-term owner of WSM at $41 (20% off).  Not a bad worst case!  

We'll do the same trade with 1/2 as many in the OOP:

  • Sell 5 WSM 2020 $40 puts for $5.40 ($2,700) 
  • Buy 10 WSM 2020 $47.50 calls for $9.20 ($9,200) 
  • Sell 10 WSM 2020 $57.50 calls for $6 ($6,000) 

That's net $500 on the $10,000 spread that's $2,500 in the money at $50 so the upside is $9,500 (1,900%) at $57.50 in 2 years and the downside is being a long-term owner of WSM at $41 (20% off).  Not a bad worst case!


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