Win/Win: Closing Two for 667% and 104%; And Investment Cruelty: Watch Us Torpedo a Sinking Ship! (AQUA, EVRI, SJM)

We’re going full marine today with a bet on AQUA stock, but before we get there, we’ve got two closing for a pirate’s treasure.

We start with our EVRI trade that graced your inbox on July 8^th.

The directive was called Upping the Ante With a Cure for Gambling.  It urged you to sell the EVRI September 17^th 25/30 CALL spread for a credit of $1.25 and buy the EVRI September 17^th 25/22.50 PUT spread for $1.40.  Total debit on the trade was $0.15.

Today, we’re of the opinion that the CALL spread can be safely left alone, while the PUT spread can be closed for a profit.

The long 25 sells for $2.55 and the short 22.50 for $1.40.  Sell the former and buy back the latter and you step out with $1.00 NET on $0.15 laid out.

That’s a profit of 667%, and should buy you several weeks’ worth of T-Bones for the whole family down at the Lincoln Grill.

All depends upon the CALL spread finishing out-of-the-money, of course, and we’ll be watching closely as the days tick down to expiry.

Right back at ya if any action needs be taken.

NEXT!

We’re closing down our Smucker’s (SJM) initiative, all the details of which can be found HERE.

In short, we’re holding the October 15^th 125 synthetic short and a credit of $1.56.

And…

The 125 CALL sells for $2.30 while the 125 PUT goes for $4.40.

Buy back the first and sell off the second, and you exit the trade with a jam-dandy $3.66 NET on an initial debit of $3.50.

And that’s a sweet-as-can-be 104%.

Today’s play is a straightforward torpedo shot at an already sinking ship.

We’re betting on a decline in Evoqua Water Technologies Corp. (NYSE:AQUA), a company that develops and deploys water and wastewater treatment systems, has a global reach and is based in Pittsburgh, where they know a thing or two about dirty water.

Fundamentals

The stock’s vital statistics are pure sludge –

• P/E is a sewer-like 84.63 (!),
• Price to Book is 8.46, while
• Dividend yield is plain old dry (as in nuttin’!).
• Q3 earnings (August 3rd) missed by better than 10%.
• Meanwhile, insiders divested 23.13% of their holdings over the last six months, directly after Private Equity giant AEA dumped their entire stake in the stock – some $545 million worth (see chart, below).

The company last week agreed to a settlement after serious flaws in its governance regime led to a shareholder lawsuit.

Now to the charts –

Technically, we’ve got –

1. An RSI overbought reading in mid-August (in green) that triggered
2. Negative divergence from both RSI and MACD (black arrows).  This is a clear sign that momentum has shifted away from the bulls.
3. A six week rising wedge is ominous (in red), as all such formations portend a decline once the lower trendline (now at 38) is breached.  We would suggest that breach is close at hand.
4. A gap at 29 needs filling (in blue).

Now the weekly –

As to the weekly –

1. We see a very near overbought scrape from the RSI indicator (in green),
2. And a rollover beginning on MACD, collectively suggesting a top is now forming.
3. A weekly bearish engulfing pattern (in blue) adds weight to the topping thesis (though we still have two days remaining in the week; the pattern may not hold).
4. Should long-term weekly support at 34 be sundered (in red), we’d likely get a decline to the first Fibonacci retracement line at $27.40.

All of which is pressing us to dive in like this –

A Jew and His Gold recommends you consider selling the AQUA November 19^th 35/40 CALL spread* for a credit of $2.15 (4.30/2.15) and buying the AQUA November 19^th 40/35 PUT spread** for $2.50 (3.40/0.90).  Total debit on the trade is $0.35.

[*Sell the 35 CALL and buy the 40 CALL.  **Buy the 40 PUT and sell the 35 PUT.]

Rationale: the trade is cheap, and we like that.

For $0.35 we buy the opportunity to gross a maximum $5.00 (a better than 1300% take).

Our downside is limited to $5.35 (difference between the CALL strikes plus initial debit).

Breakeven occurs at $37.15.

We’ll close as soon as we feel the shares have declined and 1) are about to bounce or 2) are stalled in place.

She’s a moving target, friends.

May the G-d of Jacob protect you, fellow Jews and Noahides.

And bring you many happy returns!

Matt McAbby

Follow @HughLOHaynew