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Top Trades for Tue, 26 Jun 2018 11:58 – RCL and C

RCL is a nice cruise company at $105.75 ($22.4Bn) with $9Bn in sales and $1.6Bn in profits so p/e about 14 but growing steadily.  They pay a $2.40 (2%) dividend if you own them but we can start a position in the LTP by just selling 10 Jan (as far as they go) $95 puts for $4.50 ($4,500) in the LTP.  That's a nice place to start with them with a net $90.50 entry as the worst case.  That's really good money for 6 months!

Having looked at the banks, I decided I like C the best at this level ($65.44) as they paid $29Bn in taxes last year (repatriation), so I forgive them for showing a net $8Bn loss.  Normally, they would have paid about $7Bn and made $22Bn though usually their income is in the $15Bn range as a $166Bn company, so p/e about 11 but now they have $400Bn in CASH and Short-Term Investments and another $352Bn in Long-Term Investments – but don't get too excited as they are a bank and it's not really their money…

Anyway, it's a good bank and in better overall position than BAC and with less baggage than WFC and JPM is a different animal entirely and $65 should be nice support for them and the 2% dividend is not very exciting so we'll take the following in the OOP:

  • Sell 10 June 2020 $60 puts for $6 ($6,000) 
  • Buy 20 June 2020 $60 calls for $13 ($26,000)
  • Sell 20 June 2020 $70 calls for $8.50 ($17,000) 

That's net $3,000 on the $20,000 spread that's starting out $10,000 in the money.  As C moves up, we can sell a few calls for income but the upside potential here is already $17,000 (566%) if all goes just a little well – so no need to be greedy! 

FTR/Jeddah – They are converting stock that was costing them 11.125% into ordinary shares at 1.3333/share – I'm thrilled with that deal.  Dividend was $2.78 per share, per Q so this is a huge savings to us in exchange for ordinary stock (25.67M shares out of  80M so about 30% dilution).  Since FTR was down "just" $20M last Q, they can now afford to pay everyone 0.60/share if they want but hopefully they don't and use the opportunity to strengthen their cash position.

 FTR revenues should be about $8.5Bn this year and next and they should be able to drop $1Bn to the bottom line once the transition is done, middle of next year.

 


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