Posted on November 11, 2021
Today’s letter is brought to you by the American Association of Equine Handicappers – whose proud motto is:
Gotta hand it to the folks at Churchill Downs Inc. (NASDAQ:CHDN), who turned a mere racetrack into a lucrative mechanism for stealing billions via casinos, online gaming and other wagering addiction technologies.
The outfit is now worth $8.46 billion by market cap, but we say that’s a bit rich for this pari-mutuel predator.
Consider the following fundamentals –
Bottom line is the market didn’t buy the hype.
As the chart below shows, the earnings beat was a “sell the news” event.
Here’s two years’ worth of daily price action –
Technically, we have a number of indicators that speak to a continuing decline of CHDN shares –
But we’re just playing the decline to 210.
With a speculative, short-term trade that has the potential to deliver big.
Have a look –
A Jew and his Gold recommends you consider selling the CHDN December 17th 220/230 CALL spread* for a credit of $5.60 (17.10/11.50) and buying the CHDN December 17th 230/210 PUT spread** for $6.35 (8.80/2.45). Total debit on the trade is $0.75.
Rationale: the decline has commenced and initial support has been hit. Yet there’s more downside to come as the stock looks very heavy here.
A relatively small drop will offer a very nice maximum payoff of $19.25 should we be correct.
Conversely, max loss for the trade is $10.75 (difference between the CALL spread strikes plus the initial debit).
Breakeven arrives at $224.25, just 3.7% below the current price.
The trade’s duration – just 36 days – makes it a speculative venture.
Very grateful to all of you who wrote with good wishes and prayers while we were out of commission.
Many happy returns!