בס״ד

152% Pocketed – Generational Winnings (GNRC,BLL)

Posted on February 22, 2021

Before we roll into the new week, just a word on how our BLL trade closed last Friday.

You’ll remember that we left her to expire, and she ended up closing in-the-money by $2.02.  Less our initial debit of $0.80, gives us a very savory 152%.

Now on to our Purim week assault on all that’s evil in the world.

We return this week to Generac Holdings (NYSE:GNRC), a stock we played for a 575% win back in November.

And why do we feel the time is right for another spin of the power generation wheel?

Well, the stock jumped last week on positive sales expectations after fatal blackouts in Texas saw hot new interest in the company’s products.

The stock soared.

And has since soured.

So we feel the timing is now Swiss-watch perfect to be short.

Not only are the technicals a screaming sell, but the stock trades with an

  • Earnings multiple of 66.05 (TTM), while
  • Price to Book is a Batflu hysterical 18.42,
  • There’s no dividend to speak of, and
  • Debt to Equity is stretched at 0.72.

Now look at the charts –

This is the daily since the first week in June.

And as you can see, The technical picture is dominated by –

  1. The overbought RSI read (in green), along with
  2. A MACD posture unlike anything we’ve seen for the stock in the last eleven years.
  3. The stock jumped 50% in the last three weeks (in blue), leaving
  4. Several gaps that require filling on the way down (in black).

The weekly and monthly charts also offer extremely bearish indications –

  1. To begin, price has gotten so far ahead of the long term weekly moving averages that we’re tempted to call Interpol (in blue).
  2. At 6x the value of the 411 week moving average AND NOW PARABOLIC, there’s little question price has arrived at its end.
  3. Weekly RSI is also overbought for the third time since August (in green), and
  4. Monthly RSI is not even worthy of comment (in black border).  Against the S&P 500, there’s likely no stock more overbought on a long term basis.
  5. Weekly and monthly MACD indicators are both torn open like the jaws of a great white attempting to chomp the Leviathan.

Good Luck!

And it’s for all the foregoing that we’re setting a laddered PUT spread against GNRC with an August expiry.

Like this –

A Jew and His Money recommends you consider buying the GNRC August 20th 370 PUT for $57.50 and simultaneously selling the August 20th 350 PUT for $44.30 and the August 20th 250 PUT for $10.50.  Total debit on the trade is $2.70.

Rationale: for those who just see big numbers and are scared off – slow down there, fella.

There’s very little to worry about, structurally.

Consider – if the stock closes above $367.30 at expiry, you’ll lose your original $2.70.  No more, no less.

At the same time, should the stock drop below 350, you’ll gain a very healthy $17.30.

And you know what…?

You deserve it.

Consider, too, that GNRC is now trading at $363.47 – already $6.53 in-the-money.

As for the downside…

Should the stock move toward 250 – a full 32% below its current level – where the uncovered short PUT is situated, we’re at liberty to immediately short the stock and buy a CALL, thereby setting up a short collar that would effectively lock in our gains to that point.

How much we would lock in depends upon the time remaining to expiry, for the price of the long CALL will depend in large part on the option’s time value.

Remember, too, that if GNRC does trip the 250 level, we would already have $17.30 in hand from which to buy our CALL.

It all looks right electric!

With kind regards,

Hugh L. O’Haynew

 

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