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KROGER Delivers Whopping 1053% in Just Three Weeks. SBSW Another 460%! Now Xylem’s Turn to Get Hosed (XYL, KR, SBSW)

Posted on September 13, 2021

Before we get to business, this Thursday’s A Jew and His Gold will not arrive as scheduled due to the holy fast of Yom Kippur.

From Wednesday sundown until Thursday same we will be out of the office, away from our screens, beyond the reach of the secular and mundane, and wholly ensconced in prayer and self-mortification, beseeching the Holy One to have mercy on our mortal souls.

In short, you’re on your own.

Friday morning we’ll return with instructions on September options expiry, and, of course, if there’s action required between now and Wednesday eve, you’ll hear from us.

And now – exploits and maneuverings!

On August 23rd we sent you a communiqué entitled Major Spill in Aisle Four – Kroger Stock Sours.

Anyway, there, we urged you to sell the KR October 15th 45/47 CALL spread for a credit of $1.07 and buy four (4) KR October 15th 44/43 PUT spreads for $0.25 each.  Total credit on the trade was $0.07.

And…?

Today, the CALL spread can be repurchased for $0.38 (0.64/0.26) while the four PUT spreads are selling for $0.51 each (2.11/1.60).

Execute that order and you take home $1.73 NET on nothing laid out!

Accounting for minimal commissions offers you a bodacious 1053%

IN JUST THREE FLIPPIN’ WEEKS!

We offer a hearty congratulations to wise subscriber, Dayle G., who doubled up on this one and exited Friday (in the heat of it) with a substantial haul.

One more to close.

It’s our SBSW initiative, the details of which can be found HERE.

In short, we’re sitting on a credit of $2.04 and holding two (2) short January 21st 17.50 CALLs.

The CALLs can be repurchased today for $0.60 each, and we’re advising you do so.

Buy them back and you exit with $0.84 NET on an initial outlay of bupkus (the trade was initiated with a credit).

Adjusted for minimal commissions gives you a gain of 460%.

And we inscribe ourselves in the book of winnings again.

Today’s Trade

The underlying for today’s expert, risk-defined options trade is XYLEM Inc. (NYSE:XYL), movers of water in over 150 countries worldwide.

Fundamentally, there’s not much to speak of here.  This is a manufacturer and service provider of pipes and other water infrastructure, yet it carries a…

  • Price/Earnings ratio of 63.28 (!),
  • A Dividend Yield of just 0.83%, and
  • An overly buoyant Price to Book ratio of 7.96.
  • Earnings per Share for the year declined by 36.60%, and
  • Insiders relieved themselves of nearly 20% of their holdings in the last six months.

To the tune of $24 million ($15 million in the last 60 days).

We’d consider all that fairly damning, but have a look now at the weekly chart (and you might want to grab a snorkel while you’re at it) –

We offer the weekly because it requires more attention than the daily.

And while the daily does present 1) a gap at 114 that requires filling and 2) price currently resting at key support, the rest of the chart is rather wishy-washy, and we’ve left it aside for that reason.  For those who want to peruse it, it’s HERE.

The weekly, on the other hand, resembles Boris Karloff.

  1. To begin, three weekly RSI readings at the telltale overbought 80 line (one slightly below) bespeak the end of the world (in green).  There’s little to no chance XYL can continue its climb with symptoms like this.
  2. After a bounce off the Batflu-bottom of better than 150%, a bearish rising wedge has now formed (in red) and price has already sliced through the lower trendline.  This is a textbook SELL signal.  Failure to heed it will earn you pitiless opprobrium.
  3. The last two months’ rise – as steep as it was – was preceded by an equally steep loss of volume (in purple).  Average weekly volumes declined from six million shares to under four.  And that’s a sign of weakening commitment.
  4. It should also be noted that price has become exaggeratedly distended from its longer term moving averages, a development that regularly precedes a snapback.
  5. Simple Fibonacci retracement calculations foretell a decline to the 100 range (in black).

But we don’t need that steep a fall to max out our winnings.

Have a look –

A Jew and His Gold recommends you consider selling the XYL January 21st 135/140 CALL spread* for $1.90 (7.20/5.30) and buying the XYL January 21st  125/115 PUT spread** for $3.05 (5.00/1.95).  Total debit on the trade is $1.15.

[*Sell the 135 CALL and buy the 140 CALL.  **Buy the 125 PUT and sell the 115 PUT.]

Rationale: we see an immediate downside target in the 110 to 115 range, and the trade is optimized to profit precisely from that eventuality.

Maximum gain is $8.85 (on an investment of $1.15).

Max loss – if the stock moves to new highs above 140 – is $6.15.

Breakeven occurs at $123.85.

There’s a good chance we’ll close this one well before January expiry.  The likelihood of a quick drop in the near term (before a bounce higher) should afford us our opportunity.

Stay tuned.

And, as always, may your fast be meaningful.

!גמר חתימה טובה

The G-d of Israel is a kulo rachamim.

All praise the one, true living G-d of history.

And many happy returns!

Matt McAbby

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