Posted on July 15, 2021
Today’s trade is focused on the post-Batflu recovery that everyone is convinced will happen…
Specifically, we’re zeroing in on payroll, HR and benefits management company Paychex Inc. (NASDAQ:PAYX), the Rochester, N.Y. outfit that prospers when small business goes on a tear.
Only problem is there is no tear.
More of a RIP, actually, since no one wants to work these days.
That said, expectations are expectations, and that’s what’s driven the price of PAYX inexorably higher over the last six months – to the tune of nearly 45%.
And we agree.
Particularly after a survey of the fundamentals.
Apparently, insiders are asking the same question.
In the last six months, they’ve dumped a Valemax super-carrier $50 million worth of stock.
And not only them! Hedge funds have unloaded shares in a hurry, too. Since the last quarterly 13F filing, a full 20% of those hedgies holding the stock have liquidated.
Now take a peek at the chart –
Technically, we’re at a fork in the road.
That said, the trade we’re structuring requires only a relatively modest decline to profit handsomely.
.And it look like this –
A Jew and His Gold recommends you consider selling the PAYX September 17th 110/115 CALL spread* for a credit of $2.40 (4.30/1.90), and buying the PAYX September 17th 110/100 PUT spread** for $2.45 (2.75/0.30). Total debit on the trade is $0.05.
Rationale: Cost is the best side of this trade, no question. At just a nickel a unit, many will no doubt consider doubling or tripling the recipe.
Maximum Gain on the trade is a huge $10.00 (which would make for a corpulent 19,900% gain), while
Maximum Loss is $5.05 (difference between the CALL spread plus initial debit).
Breakeven is $109.95 – exactly two percent lower than last night’s close.
Depending upon overall market structure, we may consider closing the trade early.
May you find favor in the eyes of the Al-mighty.
Many happy returns,