Posted on December 16, 2021
ADT Inc. (NYSE:ADT) has suffered from years of relative underperformance.
Just this last twelve months, for instance, the S&P 500 put on 27%, while ADT holders lost 5%.
Sure, they got a 1.74% dividend, but does that palliate the gravity of the offense?
Today, the security and alarm specialists look on the verge of a steep decline, and we’re planning to profit from it. But before we pick that lock, we’ve got three trades to deal with – and a good load of money to pocket!
Get out a pen…
First up is our GDX trade from ten days ago.
The letter was called Gold is Officially Circling the Drain, and it urged you to sell the GDX March 18th 34 CALL for $0.94 and buy GDX March 18th 27 PUT for $0.96. Total debit on the trade was $0.02.
Shiver me timbers, Yokel, but the CALL can be repurchased for $0.59 and the PUT sold for $0.83. Get it done and you take home $0.22 on two cents spent.
That’s 1100% in under two weeks.
And that’s Nutella with a spoon.
Congrats to David and Connie W. and to that famous blackbird fellow for getting in on multiple units of the trade.
We have an XLU/XLF pairing that arrived at your inbox August 5th. The directive was called How to Profit From Utility/Financial Extremitudes and it recommended you buy the XLU December 17th 70 CALL for $1.25 and buy the XLF December 17th 37/33 PUT spread for $1.40. Total debit on the affair was $2.65.
Today, we’re acting on the XLU CALL only, selling it for $0.78, while we wait-and-see on the open XLF spread.
That reduces our debit to $1.87.
More news tomorrow.
And finally, out TGT initiative, whose details can be found HERE, has us holding the January 21st 240 synthetic short and a credit of $0.03.
With TGT now trading at $236.65 – and potentially ready to bump higher – we’re closing her down.
Buy back the short 240 CALL for $6.00 and sell the long 240 PUT for $8.75 and you walk with $2.78 NET.
And that’s a very fine 172% (the original cost of the trade was $3.87).
Time for ALL the chickens to come home to roost!
ADT’s in bad shape. Their earnings are shrinking, they couldn’t turn a profit last year (nor even the last five years, on average), yet they’re borrowing money to make acquisitions and continually raising their dividend.
Doesn’t make sense.
Have a look at some raw fundamentals –
How’s that for confidence?
And how’s this for a chart? –
This is the daily for the last six months, and it shows all-round weakness.
And it goes like this –
A Jew and His Gold recommends you consider setting the ADT February 18th synthetic short* using the 9.00 strike. Total debit on the trade is $1.10 (0.20/1.30). Set a STOP buy on the shares at $9.50 to cap any losses.
Rationale: our breakeven on the trade arrives at $7.90, and with price now at $8.04, we need a decline of just $0.14 (1.7%) to start seeing profits.
Maximum gain is $7.90, in the unlikely event of an ADT bankruptcy.
Maximum loss with proper STOPS in place is $1.60 (difference between the short CALL and the STOP plus the initial debit).
Multiple units of the trade will, of course, yield greater profits (and losses).
May Hashem see us through the dark days of winter and bring us an abundant spring.
Many happy returns!