בס״ד

Emoluments and Stimulants – Two for Profit, One Narcotic (BMY,CMG,LKQ)

Posted on November 4, 2019

Two trades to close out today, so pull out a fresh sheet of paper, dippidy-do your stylus and take this down.

We start with an initiative launched way back in April (8th) on Chipotle stock.  The letter was called Rush on Border Creates Surge in Chipotle Shares!, and there we urged you to sell the CMG September 20th 760 CALL for $47.90 and buy the CMG September 20th 780 CALL for $41.00.  Total credit on the trade was $6.90.

A month later, we sold the long CALL for $10.30, adding to our initial credit and giving us a full $17.20 buffer.

And there it remained until expiration, when our short CALL expired in-the-money and we were short a lot of CMG shares at $760.

Then the sun came out…

And today?

CMG trades today at $768.63, and though we suspect it may fall further, we’re not chancing it.

Buy back the stock at the market and you’re out $863.  But with the existing credit of $1720, you come out ahead $857!  On nothing spent!

Adjusted for commissions, that’s an extraordinary gain of 5613%.

Take it easy…But take it!

Our next closure comes from a letter we sent September 23 called, appropriately enough, LKQ Will Trade in a Range.  The recommendation was to sell a strangle: the LKQ November 15th 30 PUT for $0.75 and the November 15th 35 CALL for $0.50.  We then advised you to purchase the LKQ February 21st 35 CALL for $1.20.  Total credit was a nickel.

And today?

LKQ his risen beautifully, putting our options nicely in the black.

The short PUT is worth $0.05 and the short CALL goes for $0.75.  Buy them both back and sell the long CALL for $1.90, and you walk away with $1.15 on nothing spent.  Adjusted for commissions gives you a 667% profit in six weeks.

And that’s better than a dirty cowboy boot in the eye.

This Week’s Trade

Today we’re looking at Bristol Myers Squibb (NYSE:BMY), one of the world’s largest manufacturers of medicines that kill, whose stock has been on a tear since mid-summer, but looks ready to cool coming into the rainy season.

She’s still cheap relative to her peers on a valuation basis, but the big drug pushers rarely boil over fundamentally.

That said, BMY just reported a reasonable earnings beat last week, and we say it’s time to sell the news.

Why?

Have a look at the chart –

Technically, we have

  • An overbought stock, according to the 80+ RSI read (in green),
  • That has put on a lot of weight over the last 10 weeks (in red – a full 40%!).
  • Along the way, a significant gap has also opened between $53 and $54 (in blue).
  • And that will have to close.

So…?

Our preferred method of dealing with drug dealers is somewhat less delicate than what we’re proposing today.

We’re choosing to act with restraint: we’re selling a CALL spread and using the proceeds to buy a PUT.

Like this –

A Jew and His Money recommends you consider selling the BMY January 17th 57.50 CALL for $2.28 and buying the BMY January 17th 62.50 CALL for $0.67.  With your $1.61 credit, purchase the BMY January 17th 55 PUT for $1.56.  Total credit on the trade is $0.05.

With kind regards,

Hugh L. O’Haynew

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