Posted on November 18, 2021
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Today’s trade is built on the poison-peddlers from Battle Creek, Michigan – Kellogg’s Co. (NYSE:K).
Kellogg’s brands itself as the maker of ‘ready-to-eat cereal and convenience foods’.
But, of course, there’s more to it than that.
The company’s true aim is to appeal to the intellectual cravings, as it were, of the modern harried consumer. Hence the sophisticated brand name selection.
To wit –
To name but a few.
So, you see, purchasing these items is not a mere passing adventure for your taste-buds. It also makes a powerful statement about your wisdom, general health aptitude, and perhaps even your genetic endurance.
Anyway, the stock’s fundamentals are reasonable, mostly because the shares haven’t done anything in the face of history’s hottest bull market.
So we’re not discussing a Tesla growth story here.
This is a laggard that no one expects much from at all.
Call it a ‘value’ stock if it makes you feel better, but the bottom line is this puppy’s going down.
The company is now also struggling with supply-chain issues, inflationary inputs and a strike at its cereal plants, with 1500 workers picketing and the company now upping the ante with a lawsuit against employees for allegedly blocking factory entrances to replacement workers.
Worst of all, cereal sales account for 40% of K’s sales.
Here’s the daily chart –
Technically, we have a number of negatives –
And for all the foregoing, we now offer the following elegant, risk-defined trade for your profiting pleasure –
A Jew and His Gold recommends you consider shorting one lot of K at its current price of $62.96 and buying a protective March 18th 67.50 CALL for $1.10. Total credit on the trade is $61.86.
Rationale: the short sale will maximize our take on the downside, and is fully protected by the long March CALL.
Our maximum gain on the affair is theoretically a full $61.86.
Our breakeven is the same $61.86, just 1.7% below the current stock price.
Maximum loss – should the stock rise to challenge six month highs – is $5.64 (difference between the trade’s credit and the CALL strike). We view this as virtually impossible, given the company’s recent performance, the labor standoff, inflationary backdrop and supply chain issues.
Hashem, Master of Legions, will have the final say. May we ever find favor in His eyes.
Many happy returns!