A Noteworthy 50% Gain and… Those Chemicals Rotting Your Brain (CTVA, GWW)

We’re coming at you early this week for reasons that will become abundantly clear in just minutes… First, though, let’s have a look at our GWW initiative, because it’s about to put some very respectable coin in our pockets. Bottom line is we’re now in possession of one short  GWW May 20^th 550 CALL and a credit of $1.25. And whaddaya know…? With GWW currently trading below $484, the long CALL now sells for just $0.25. And that books it. We’re urging you to buy it back and walk away with one dollar NET on $2.00 spent. And that’s a solid 50% return.

On with it!

Today’s bet relies on the agro-chemists at Corteva Inc. (NASDAQ:CTVA) as our underlying, because whenever you get a chance to exploit the poisoners of children and small animals it’s a good day – particularly when those wielding the toxins are applying “advanced germplasm” to further the sale of “trait technologies” to industrial farm operations across the globe. Corteva delivers earnings after the close today (May 4^th), and we’re betting on a downright chemical market response. In the meantime, feast your beadies on the following fundamentals –

• CTVA sports a P/E of 23.86, though historically at averages a third less than that,
• Dividend Yield is 0.98%,
• Price to Book is 1.65 (no problem there), but
• Sales have grown at a rate of only 2.40% per year for the last five years.

That’s right. It appears the only impetus behind CTVA’s recent price performance is external – read: inflation. And that won’t hold up once guidance is offered on Wednesday afternoon. Further proof that the rise has concluded – at least for the time being – is found in the price chart. Investors already appear to have pulled the plug. Have a look at the daily paste-up for the last six months –

1. To begin, CTVA rose 40% in just three months (in black),
2. All the while tracing out a rising wedge pattern (in red).  That formation, as we’re wont to say, is always bearish, and true to form, when the lower edge of the wedge was sundered some seven sessions back, price tumbled (red arrow).
3. Currently, there’s a struggle to regain the short term MA (blue circle), but the bulls are increasingly giving ground, and it’s our contention that today’s earnings will be the ‘make or break’ for CTVA shareholders.
4. Anything other than stellar news will likely precipitate a fall toward the intermediate-term moving averages – which also correspond to a simple Fibonacci retracement calculation (in purple).  To be specific – toward the 50/51 range.

And it’s to that end that we’ve crafted our trade. Take a look –

A Jew and His Gold recommends you consider selling the CTVA June 17^th 55/60 CALL spread* for a credit of $1.80 (4.10/2.30) and buying the CTVA June 17^th 55/50 PUT spread** for $1.75 (2.50/0.75).  Total credit on the affair is $0.05.

[*Sell the 55 CALL and buy the 60 CALL.  **Buy the 55 PUT and sell the 50 PUT.]

Rationale: the trade pays $5.05 on nothing spent.  Adjusted for minimal commissions makes for a take of 3267%. Max loss is $4.95 (difference between the CALL strikes less the initial credit). Breakeven comes at $55.05 – a decline of 3.8%.

Hang on tight, all ye good Jews and Noahides!  The ride begins later this afternoon. And the Holy One, Blessed be He is bidding you good courage and faith.

!חזק ואמץ

Many happy returns! Matt McAbby

Follow @HughLOHaynew