Expel the Interloper! Seize Him by His Jackminster! And Two Big Wins – 788% & 92% (XPEL, TWI, GO)

According to their own literature, XPEL, Inc. (NASDAQ:XPEL) manufactures, sells, distributes, and installs after-market automotive products.

And what would those products be?

An assortment of coatings, films and fluids, the better to protect your car’s finish and make your lungs look like –

Ahem…

We’ve selected the stock (and its options) for today’s trade with not a little reluctance.

Why?

Because the market is at a turning point, and option prices across the board are confirming that.

How so?

In short, they’re pricing a significant decline over the coming six to eight weeks, and that means –

1. Spreads are widening,
2. There’s little leverage to be found anywhere – for a good price, at least – and,
3. The cheapest plays are all to the upside.

Now, whether we actually get a drop is a completely separate issue.

In the short run, anything can happen, and a great deal has to do with perceptions, as always.

The news is bad, the economic outlook and “official” numbers equally so, and that long-sought-after day of capitulation has yet to be seen.

And yet, a contrarian has to consider the possibility of a swift move higher.

But before we get to that, we have two trades to close for some fine gains.

The first is our TWI initiative from July 14^th.  The letter was titled Titan International Raises Guidance —  Stock Peaks, Powers Lower, and it urged you to set the TWI October 21^st 15 synthetic short for a debit of $1.20.  We also recommended you set a STOP buy at $15 to avoid any catastrophic loss.

And…

The long PUT sells today for $2.30.

We say: dump it and leave the short 15 CALL to wither.

Leave the STOP in place, too – just in case.

We’ll advise you in the event of any necessary action.

The stock has to climb almost 15% to put the short CALL back in play, so we feel safe leaving it be.

Should it expire worthless – as we fully expect – we’ll take home 92%.

—————————————-

Next up was our GO trade, whose details can be found HERE.

In brief, we’re holding a debit of $2.28, a short September 16^th 40/45 CALL spread and three (3) September 16^th 40/35 PUT spreads.

And our advice:

Buy back the short CALL for $0.50.

Sell all three PUT spreads for $1.50 each (1.85/0.35).

That will NET you $2.22 on a debit of just $0.25.

And that’s a luxuriating 788%.

Oh, boy…

Now for today’s trade.

Probably best if we dive right into this one and let the numbers and charts do the explaining.

We start with the company’s fundamentals, which, in our view, are atrocious.

• P/E is currently 55.25. Why?  Because shining up your car, apparently, is a momentum proposition.
• There is no Dividend Yield.
• P/B is a pungent 18.37.
• Insiders sold $47 million worth of stock in the last six months – 19.40% of their stake. Of that total, $16 million exited in the last four weeks.

Would you go long, given those numbers?

Some did.

After solid earnings and a key contract announcement, however, the stock failed to hold its gains.

And now, it looks to be headed into the barrel.

Have a gander –

Technically…

1. The shares were furiously overbought after earnings, triggering an extended RSI 80+ read (in green) in mid-August…
2. That has since drifted below its mid-way waterline (circled, in red).  That’s a sign the bulls have all but given up on buying.
3. MACD is fast closing on its own waterline, and when/if it submerges, we’ll likely get a renewed bout of selling from technicians.
4. Price was clearly beyond itself after a three-month gain of 115% (in red) on massive volume (in black) that did a very quick turnaround when the broad market softened.
5. All moving averages save the short-term have unwound lower, but it will probably take a few weeks for her to catch-down, as it were, to the rest.  That will require softer prices, of course, and that’s still an unknown.  Structurally, though, the stage is set for further weakness.
6. Everything hinges on strong support at 65 (in purple).  Price could play at this level for a couple of weeks yet, before a sure direction is established.  But until then, we’re betting it’s DOWN.

And it’s for that reason, we’re setting the following –

A Jew and His Gold recommends you consider selling the XPEL October 21^st 60/65 CALL spread* for a credit of $2.10 (10.10/8.00) and buying the XPEL 65/60 PUT spread** for a debit of $2.45 (3.70/1.25).  Total debit on the affair is $0.35.

[*Sell the 60 CALL and buy the 65 CALL.  **Buy the 65 PUT and sell the 60 PUT.]

Rationale: $0.35 to take home $4.65 NET is a tremendous opportunity, given the current market situation.  That’s 1328%, and we believe you’ll have a hard time digging up something comparable anywhere.

The big IF here is whether support at 65 is genuine.  If we dip below that level, there’s no doubt it’s over.  But how long that might take – if it even happens – remains a quark of a quasar of a black hole of an active galactic nucleus (AGN) in the interstellar space-time continuum.

I.e., only the ghost of Stephen Hawking knows.

Max loss is $5.35 (difference between the CALL strikes plus the initial debit).

May the Holy One deliver us through to the Day of Judgment and inscribe us in the Book of Life for another year.

And may He wreak vengeance on any and all who’ve dealt unjustly with His holy people.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew