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SUPER-WINS: 1300% AND 36%, and Avery Dennison Takes the Last Dance (AVY, RSI, SNBR)

Posted on May 6, 2021

Before we offer today’s trade, we’ve got two to close for big bucks.

To begin, we’re closing down our RSI initiative, originally launched on April 8th in a letter called Slow Down, You Move Too Fast – Rush Street Stumbles.  There, we urged you to set the RSI July 16th 20 synthetic short for a debit of $4.75.

And today?

The stock trades for $13.12, and we’re urging you to close out immediately.

Buy back the short CALL for $0.55 and sell the long PUT for $7.00, and you rake in $6.45 on $4.75 spent.

That’s a very comfortable 36% in ONE month.

Next up is our SNBR trade, which arrived at your inbox on February 15th in a communiqué called Don’t Think; Don’t Worry; Just Sleep – We’ll Take Care of The Rest.

The bet was to sell the SNBR June 18th 170 CALL for $6.20 and buy the SNBR June 18th 95 PUT for same price.  Net Zero premium was the result.

And today, the breakdown’s like this –

The CALL can be safely ignored, as the stock would require a 70% gain in the next 30 days to put the option back in play.   The PUT, however, can be sold for a very juicy $2.10.

We’re going to chalk this up as a win with a gain of $2.10 on nothing spent, but we’ll circle back again at expiry to make it official.

Accounting for minimal commissions, the trade danced a 1300% hoedown in just over ten weeks.

Now on to today’s offering.

We’re betting today on Avery Dennison (NYSE:AVY) – the sticker makers – taking their final skip around the ballroom over the next few weeks.

There’s really not much to like about the stock.

But the business is great.

What’s one got to do with the other?

Zilch.

Consider –

  • The stock’s P/E is 28.59,
  • Its Price to Book is an HGH-induced 12.06,
  • Dividend Yield is 1.27,
  • Debt to Equity is a troublesome 1.43, and
  • Long Term D/E is equally problematic at 1.38.

The company reported a nice earnings beat last week (April 28th), but it appears the bulls have given up.  The stock has done little to nothing since then, and we believe confidence in AVY is now shot.

Have a look at the daily –

  1. Here, we see an overbought 80+ RSI indication (in green) from last week.  That signal marks the culmination of a 180% rise that began last March (in black).
  2. It also aligns with RSI overbought reads on the WEEKLY and MONTHLY charts (not shown here), both of which are currently still in effect.  This kind of ‘triple play’ from the Relative Strength Index is among the most damning indications we know of.
  3. The stock maintained a uniform rise for better than six months in the trend channel marked in red.  Only in the last ten sessions or so, have we seen genuine froth on the stock (in blue).  And that’s why we’re convinced it’s time to move.
  4. A simple Fibonacci retracement to 162 (in purple) comports well with a gap that needs filling at 158.

And that leads us to the following –

A Jew and His Gold recommends you consider selling the AVY October 15th 220 CALL for $11.10 and buying the AVY October 15th 230 PUT for $25.30.  Total debit on the trade is $14.20.  Set a STOP buy on the shares at 230.

Rationale: With a decline coming, we very much like the structure of the trade.

Breakeven on the affair arrives at $215.80, and with the stock currently at $215.92, we need a drop of just pennies, virtually, to begin profiting.

On the other hand, should the stock rise, we have a STOP in place to prohibit a catastrophic loss.

Remember – an open STOP should be in place until the trade is closed.  If the STOP buy is triggered, reset a STOP sell at the same level (230).  If that gets filed, reset a new STOP buy at 230.  And so on…

That will keep the trade square.

Maximum loss would be $24.10 (difference between the strikes plus initial debit) in a worst case scenario – which seems far-fetched considering the current technical underpinnings.

Maximum gain is unlimited.

We’ll very likely close the trade as the value of the PUT begins to dwarf that of the CALL, or upon arrival to the 160 range.

Many happy returns,

Matt McAbby

 

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