Posted on January 7, 2021
Today’s underlying is an ecommerce outfit based in the Cayman Islands, banking home of the independently wealthy, both criminal and hard-working.
They call themselves StoneCo (NASDAQ:STNE), and they claim to facilitate financial transactions for small business in Brazil.
Of all things…
Fundamentally speaking, StoneCo has some dastardly numbers:
Granted, she’s an online business – and that explains, at least in part, the inflated metrics – but with 6000 employees, we’re beyond start-up stage growth numbers. So something’s amiss.
A scan of the company’s press releases reveals little in the way of thrill-inducing buy signals.
Yes, Berkshire Hathaway owns a chunk of the company, and yes, that’s exciting.
But at some point, buying must needs exhaust itself.
And we believe that time is now – for now.
Have a look at the daily chart for the last year –
Technically, we don’t like –
The weekly chart is also problematic, because here, too, we have an overbought RSI signal –
And we’re playing it as follows –
A Jew and His Gold recommends you consider buying the STNE February 19th 77.50/67.50 PUT spread for $3.95 (5.40/1.45).
Rationale: when the great sucking sound is heard across the land, STNE will drop like a … well, you get the picture.
Maximum gain on the trade is $6.05 (difference between the strikes less initial debit).
Maximum loss is limited to the initial debit – $3.95.
Breakeven for the trade is STNE $73.55 (current price is $77.95).
Many happy returns,