בס״ד

Midsummer Horse Play (WKHS, IGV/TQQQ)

Posted on July 12, 2020

We’ve got one trade that requires attention before we move on to this week’s business.

It’s our IGV/TQQQ straddle pairing that we initiated in Market Neutral in High Gear on July 6th.

The recommendation was to sell the IGV August 21st 290 straddle for $23.60 and buy the TQQQ August 21st 103 straddle for $23.20.  Total credit was $0.40.

And today?

We see an opportunity to close out the CALL side for a nice slice of cake.

The long TQQQ sells for $20.30 and the short IGV runs for $18.30.  Sell the former and buy back the latter for a fat $2.00 in your pocket (to add to the initial $0.40), and wait to see if there’s something to be had on the PUT side when this bugger eventually breaks.

Today’s Trade

We’re moving today from the ludicrous to the bizarre with a look at a stock that has no business being listed on any self-respecting exchange.

The company is Workhorse Group Inc. (NASDAQ:WKHS), an outfit with no earnings, no dividend and no book value, whose shares increased in price by 1650% in the last three months.

What!?

Do they provide an online meeting space for students and businesses, you ask?

Or an easy to scale, cloud-based buy and sell platform?

Or maybe a fully-textured, virtual paramour experience – complete with latex glove-cups and mock leather stirrups?

No, no.

According to their literature, Workhorse designs, manufactures, builds, sells, and leases battery-electric vehicles and aircraft.

And we all know the demand for those items is infinite.

Hmmm…

In truth, the stock surge occurred because WKHS is in the running for a multi-billion dollar contract with the US Postal Service.

Even though they’ve never sold anything yet.

But they might.

Get it?

Here’s the chart –

Horse Shoe.

Plausible deniability…

Technically, the issues are plain –

  1. A bareback oversold RSI indication (in green),
  2. On massive Clydesdale volume (in black),
  3. That pushed price parabolic in less than a month (in blue).

So…?

Bottom line is we’re no equine equivocators.

Nor will we brook such roan baloney.

We’re gonna ride it like this –

A Jew and His Money recommends you sell the WKHS October 16th 27 CALL for $2.20 and use the funds to purchase the WKHS October 16th 9 PUT for $2.15.  Total credit on the trade is $0.05.

Rationale: The above sets us up for a healthy haul in the event of a decline, and the trade pays for itself – a nice kicker.

We’re not worried about the naked CALL, as it’s unlikely in the extreme we’ll see WKHS spiking toward it’s former highs at $23.

That said, we would urge all and each to place a STOP buy order for the stock at $26 – just in case WKHS experiences another “Secretariat” moment.

With kind regards,

Hugh L. O’Haynew

 

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