Posted on December 2, 2021
May the G-d of the Maccabim show us the way b’msirut nefesh to cast down all the Hellenizing wannabes, destroy our Esavian enemy and dispel the Erev Rav from our midst!
Before we get to today’s trade, we have two whopper Thursday closures for you.
The first is our CHDN initiative that arrived at your inbox on November 11th.
The missive was called Why Bet on a Lame Horse? and it urged you to sell the CHDN December 17th 220/230 CALL spread for a credit of $5.60 and buy the CHDN December 17th 230/210 PUT spread for $6.35. Total debit on the trade was $0.75.
The CALL spread can be repurchased for $3.60 (5.50/1.90) and the PUT spread sold for $10.50.
Get it done, and you walk with a ginormous $6.15 on just $0.75 expended.
That’s a Triple Crown 820% paydirt, break-the-piggy bonanza, buddy.
And you didn’t have to venture down to OTB to pocket it.
Hostess Inc. Gets Swallowed Like a Twinkie! was our TWNK trade from November 11th. It recommended you sell the TWNK January 21st 17.50/20.00 CALL spread for $1.05 and buy the TWNK January 21st 20.00/17.50 PUT spread for $1.50. Total debit on the trade was $0.45.
Well, today the CALL spread can be bought back for $0.55 (0.65/0.10) and the PUT spread sold for $2.00 (3.30/1.30).
Execute, and you take home $1.00 NET on $0.45 spent. And that’s a healthy 222%.
Good on ‘Team Depends’ for trading multiples of this one.
We’re taking on the chip industry today (again), something we’re loathe to do as a matter of policy.
That said, we see that things have gotten so far out of hand, and that stocks have behaved in such a preposterously irrational manner, that we’re forced to oil the chain-mail, take up the broadsword and saddle the Clydesdale for battle.
The stock we’re inveighing against is Santa Clara’s Advanced Micro Devices (NADAQ:AMD), chipmakers extraordinaire, whose stock has quite simply gotten away from itself.
The semiconductor industry is a battleground itself, with AMD, Intel and Invidia (amongst others) caught in a coliseum death match, each vying to grow its business at the expense of the other amid supply chain issues that have created chip shortages for dozens of industries across the globe.
Fundamentally, AMD posts the following Graham and Dodds –
And if you take a look at the price action on the stock, it’s really no wonder.
Here’s the last six months’ trade for AMD –
Technically, the most salient feature of the chart is –
And it’s for all the foregoing that we now recommend the following action –
A Jew and His Gold recommends you consider selling the AMD February 18th 150/155 CALL spread* for $1.80 (15.05/13.25) and buying the AMD February 18th 150/140 PUT spread** for $5.45 (16.05/10.60). Total debit on the affair is $3.65.
Rationale: very tight spreads offer us a wonderful opportunity to better than double our money on a reasonable time horizon with limited risk.
Max gain on the trade is $6.35 NET on $3.65 spent.
Max loss is $8.65 (difference between the CALL strikes plus the initial debit.
Our breakeven hits at $146.35, and with price now at $149.11, we need to see a decline of just 1.8% to get there.
And that looks very good.
The trade’s time horizon is generous without being too heavy on time value, and was selected with the expectation of a near term pullback.
Many happy returns!