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Fortune Faders Grow Bold (FBHS,SPGI)

Posted on October 26, 2020

First up – and before we get to our trade – a word to all you true believers, who held on to SPGI through Friday’s close…

Congratulations!

May the Holy One always favor you and yours.

You took home the full measure of the trade, walking with $6.40 on $3.60 spent.

And that’s a slim-dandy 177%.

We’re heading into the furniture realm today (again) with a look at Fortune Brands Inc. (NYSE:FBHS) retailers of cabinets, plumbings and locks, among other things.

The shares have had a most flushing run since the Batflu bottom in March, rising 173%, and putting us squarely in the camp of those who foresee a correction.

Fundamentally, the shares are expensive, trading with –

  • A P/E of 27.6,
  • A Price to Book of 4.81,
  • A dividend yield of 1.12%,
  • And an insider class that’s also in sell mode.  Over the last six months, that group has offloaded better than 44% of their holdings (nearly all in July/August as the stock crested).  In total, over $40 million was banked.

Now look at the chart –

With kind regards,

Hugh L. O’Haynew

4 responses to “Fortune Faders Grow Bold (FBHS,SPGI)”

  1. Jim Rodgers says:

    Hello Hugh,
    I know you and staff are busy scouring the financial landscape for the next sterling trade, but would you have time step us through how the max loss and gain are calculated?
    Thanks, Jim

  2. Hugh L. O'Haynew says:

    Busy like bees, Jimmy!
    But always time for a long-time reader.
    Here’s the low-down (assuming you’re talking about this trade, specifically) –
    The maximum gain on every SHORT spread is the premium gained from the sale. The maximum loss is the difference between the strikes – less the initial premium collected.
    The maximum gain on every LONG spread is the difference between the strikes – less the price paid for the spread. The maximum loss is the premium paid for the spread.
    Here, we have offsetting spreads, meaning the price paid for the long PUT spread ($3.10), less the premium collected from the short CALL spread ($2.70), constitutes our initial debit for the trade ($0.40).
    So far, so good.
    Now the beef.
    Maximum profit occurs when price moves below the lower PUT strike (75). In that case, we pocket $10 (the difference between the strikes). But we paid $0.40 to set the trade, so our net gain is $9.60 (10.00 – 0.40).
    Conversely, max loss occurs when price moves above the higher CALL strike (85). In that event, we’re out $5.00 (the difference between the strikes) and another $0.40 that we spent to initiate the trade, or $5.40 total.
    Hope that helps.
    If there are still loose ends, keep hounding us.
    The Rabbis make it very clear that it’s never the student’s obligation to understand the teacher, but the teacher’s obligation to make himself crystal clear to the student.
    If that takes time, so be it.
    Don’t be shy.
    All misunderstandings and failures to adequately convey the material are on us.
    Take good care,
    Hugh

  3. Jim Rodgers says:

    Thanks so much Hugh for all the help. Is there a book on option basics that you would recommend? I don’t think I’m going to have time to come to Israel and shadow you in an apprenticeship, even though we’re trying to come first of April if you will get that lockdown lifted!
    Do what you can though!
    Jim

  4. Hugh L. O'Haynew says:

    bs’d
    The pleasure’s ours, Jimmy.
    As for a basic guide, we’ve been out of the loop for a while.
    Way back when, we used to follow Lawrence McMillan, and he’s still good.
    He’s written a number of books, but his first, Options as a Strategic Investment, might be a good place to start.
    That said, it also includes a good bit of advanced material that you may not need.
    Maybe a website like Investopedia would be a better starting place? They have basic tutorials there.
    There are other investing and option education sites that are also good.
    A good understanding of spreads, straddles and strangles – long and short – will give you a start.
    You can add to your repertoire after that.
    In our humble view…
    Always good to hear from you, Jim.
    And praying for an end to all these nonsensical lockdowns.
    Let the guns blaze!
    Hugh

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