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Top Trades for Wed, 01 Dec 2021 12:52 – VIAC, INTC, MO, WBA and IBM (again)

We had a busy morning as we announced our 2022 Trade of the Year (officially) as IBM.  

In setting up the trade for the Money Talk show tonight (7pm, BNN), I came up with a more conservative strategy that still has kick-ass returns.  While reviewing our Money Talk Portfolio, we had several more trade ideas that are all Top Trade worthy.  

I know it's annoying that sometimes we don't put out Top Trade Alerts for weeks but, when the market gives us a sale, THEN we have plenty to talk about:

VIAC – I am as dumbfounded as to how cheap Viacom is as I was about HPQ last quarter.  You would think they are going bankrupt but no, they are making $2.5Bn a year yet, at $31, you can buy the whole company for $20Bn – and I predict someone will.  When that happens, we collect sooner so we're going to close the current spread for a net $5,300 loss and add back the following:

  • Sell 10 VIAC 2024 $30 puts for $6 ($6,000)
  • Buy 40 VIAC 2024 $25 calls for $10 ($40,000) 
  • Sell 40 VIAC 2024 $40 calls for $5 ($20,000) 

That's net $14,000 on the $60,000 spread that's $24,000 in the money to start and, if VIAC gets bought for $40+, we will get a quick cash out on our spread with the full $46,000 (328%) upside potential realized.  That would make up for the $5,300 loss quite nicely!    

 

Intel (INTC) was our Trade of the Year for 2021 and it did so well we cashed it out in April but now it's come back down and we'd like to add it back to our Money Talk Portfolio.  They did not make the cut because 2022 is an investment year for them but, longer-term, we're very exited to own the stock under $50. 

  • Sell 10 INTC 2024 $45 puts for $7 ($7,000) 
  • Buy 20 INTC 2024 $45 calls for $11 ($22,000)
  • Sell 20 INTC 2024 $55 calls for $7 ($14,000) 

Here we are laying out net $1,000 in cash and promising to buy 1,000 shares of INTC for $45.  If we lose all of the spread value and have to buy the stock, our net entry would be $46, which is still $3.20 (6.5%) below the current price.  It's a little aggressive but I certainly don't fear owning 1,000 shares of Intel for the long haul. It's a $20,000 spread so the upside potential is $19,000 for a 1,900% return if all goes well and, as we're starting out over $9,000 in the money – it's already going well!  INTC has to fall 10% before you lose money on the spread – that's a great way to start! 

Altria (MO) made $4.5Bn last year so they are pretty recession-proof at $80Bn and this year they are making more like $8Bn.  The catalyst we are waiting for is full legalization of marijuana but we don't know if that will happen next year – so they remain a runner up but a fabulous play at $42.50 as such: 

  • Sell 5 MO 2024 $40 puts for $8 ($4,000)
  • Buy 15 MO 2024 $40 calls for $6.60 ($9,900)
  • Sell 15 MO 2024 $50 calls for $3 ($4,500)

That's net $1,400 on the $15,000 spread so we have $13,600 (971%) of upside potential against our cash outlay and we are promising to buy 500 shares of MO at net $42.80, which is still 13% below the current price – that's our worst case, which isn't bad, is it?

Walgreens (WBA) has been a favorite of mine all year at this level.  They were completing a turnaround when they were rudely interrupted by the virus last year and now it's the place we'll be getting our booster shots in the states, which should be great for business – unless they are forced to shut down again – that's the big risk here and why they are a runner -up.  Still, I think $44.80 is ridiculously cheap for them so we'll add them as well:

  • Sell 5 WBA 2024 $40 puts for $10.50 ($5,250)
  • Buy 15 WBA 2024 $40 calls for $9.80 ($14,700)
  • Sell 15 WBA 2024 $52.50 calls for $4 ($6,000)

Here we're spending net $3,450 on the $18,750 spread so we have $15,300 (443%) upside potential at $52.50 and our worst case is owning 500 shares for net $46.90 – a bit more than the current price.  Here I did not feel comfortable committing to owning too many shares so we spent more cash to set up the spread.   Never assume all your trades will go your way! 

And that brings us to our 2022 Trade of the Year which has to be IBM (again) as we only sold it back in September because it had already made us a ton of money.  Now we are being given a chance to re-enter the stock, not only at a ridiculously low price – but while the option prices are in our favor due to all the volatility!  

IBM acquired Red Hat in October of 2018 and 2021 was supposed to be the year it began paying off but that's been delayed by Covid though the company did make $5.6Bn last year and is on the way to making $8.6Bn in 2021 and over $9Bn next year yet, at $117.10, you can buy the whole company for $106Bn – just over 10 times earnings – for IBM!   They are big on cloud computing and leaders in Quantum Computing and there's still Watson creeping into our everyday lives – this is a great company to hold for the long-term but with near-term catalysts we like to see for a trade of the year.  We also think $115 is a very strong bottom – another huge plus:

  • Sell 10 IBM 2024 $100 puts at $12.50 ($12,500)
  • Buy 20 IBM 2024 $100 calls at $22.50 ($45,000)
  • Sell 20 IBM 2024 $115 calls at $15 ($30,000)

That's net $2,500 on the $30,000 spread so there's $27,500 (1,100%) potential upside to the cash outlay.  Our worst-case scenario is  owning 1,000 shares of IBM at net $102.50, which is 12.5% below the current price and, keep in mind, this trade is starting out 100% in the money and you only lose if IBM goes below $102.50 – which would be insanely cheap.  All IBM has to do is not go lower than it is now and you make $27,500 in profits – now THAT is a Trade of the Year! 

There's 4 brand new trade ideas that have the potential to make another $75,400 over the next two years.

 


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