Pulling in 1200%! – Then Upping the Ante With a CURE For Gambling! (EVRI, AYI)

Before we get to today’s trade, we have one hum-dinger to close.

It was opened less than two months ago, on May 13^th, in a communiqué called The Switch Has Been Flicked.

There, we urged you to sell the AYI November 19^th 220 CALL for $6.70 and buy the AYI November 19^th 140 PUT for $5.80.  Total credit was $0.90.

Now, there’s lots of time remaining on the trade, and you could walk with a perfect hamburger of a profit if you held on, but we’re out.

Anything could happen – and greed kills.

The short CALL trades today for $2.25 and the long PUT for $3.30.  Buy back the former and sell the latter, and you walk with $1.95 ON NOTHING SPENT!

Adjusted for minimal commissions gives you a 1200% profit in just eight short weeks.

Take it to the bank…Take it to the bank… Take it to the bank…

We return to the crap tables today to take on EVRI Holdings Inc. (NYSE:EVRI) a small-cap operation that provides technologies for the gaming and gambling sector and ‘cash access services’ to casinos and their online amoral equivalents.

Some of you will recall that we played EVRI on the upside late last year for a tidy 22% profit.

This time we’re betting on the downside.  And we’ve a hunch the winnings will dwarf those of the previous deal.

Let’s start with a look at the fundamentals –

• The company has NO P/E (because it hasn’t earned anything),
• Offers NO Dividend,
• Posts a Hogwartsian Price to Book ratio of 123.05(!),
• A record-breaking Debt/Equity ratio of 64.58 (is ANYONE paying attention!?),
• And her annual earnings declined this past year by 558.90%.

In other words, there’s no meat here at all.

Yet the stock costs more than the ‘Rib-Breaker’ Veal Deal down at Francesco’s Fine Italian Sandwich.

How could it be?

We say it can’t.

Or, rather… that it won’t.

And we’ll let the charts explain –

This is the daily for the last six months.

1. Note first, the overbought RSI read from the first week of June (in green), which was followed by another RSI surge two weeks later (not as high) and continued divergence against price ever since.  Divergence is a sign that bullish momentum is waning.
2. MACD, too, is rolling lower and diverging.
3. We have a gap to fill down to $21.50 (in blue), after which strong support arrives at just $17.00.
4. Moving averages are now unfurled for the first time in almost a year and a half – a development that very often precedes a retracement.
5. Price has separated so hastily and to such a distance from her salient moving averages that a significant snap-back has now become likely (in red).  It was last August when price last made contact with her 137 DMA.

And that’s too long.

Now have a look at the weekly –

1. The weekly chart shows the full measure of the move, a full 1260% in just over a year (in red).
2. It also shows two weekly overbought signals in the last six weeks (in green) – bad enough in itself, but when coupled with the daily overbought action, could spell an express trip to the Gulag.
3. MACD, too, has begun to roll lower, an additional sign of waning momentum, and…
4. This week’s price action is tracing out a bearish engulfing pattern (in blue), a strong indication of a top.
5. We would only add that declining volume (in black) is another potential sign of folks losing interest in EVRI.
6. Simple Fibonacci retracement calculations would have price decline to either $16.83 or $11.00.

Take yer pick!

If we see decline to either level, the following trade will pay off in abundance –

A Jew and His Gold recommends you consider selling the EVRI September 17^th 25/30 CALL spread* for a credit of $1.25 (2.00/0.75) and buying the EVRI September 17^th 25/22.50 PUT spread** for $1.40 (2.70/1.30).  Total debit on the trade is $0.15.

[*Sell the 25 CALL and buy the 30 CALL.  **Buy the 25 PUT and sell the 22.50 PUT.]

Rationale:  We like the odds of a pullback in EVRI shares before November, and we like the minimal layout the trade requires.

For $0.15 we get a stab at a NET $2.35 take (our maximum profit).

If it goes, that’s 1567%.

And if we trade multiple units, well… that would be a gambler’s dream, wouldn’t it?

Maximum loss on the trade is $5.15 (difference between the CALL spread strikes plus initial debit).

Breakeven arrives at EVRI $24.85.  And with price currently at $24.54, that means we’re already in-the-money $0.31.

The Al-mighty Living G-d of Israel neither slumbers nor sleeps!

Praise Him!

Your destiny is in His hands.

Many happy returns,

Matt McAbby

Follow @HughLOHaynew