Posted on November 29, 2021
A Freiliche Chanuka to all you good Jews and Noahides!
May the light always triumph over darkness.
Today’s trade is embedded in the realm of “cloud-based human capital management” providers – specifically, Automatic Data Processing, Inc. (NYSE:ADP), or ADP, as they’re more commonly referred.
Glad you asked…
It means they provide tools for management teams and HR departments to turn you into a byte-sized package of digital abstraction.
Bottom line: we don’t like ADP stock at this stage. And we’re preparing to make money as she trips lower.
But first, come have a look at the fundamentals –
Is there something there…?
The company upped its dividend recently, yes, making for 47 consecutive years of raises, and that’s impressive.
It also added a number of new businesses to its stable, in keeping with its acquisition strategy.
And exactly one month ago, ADP beat quarterly analyst estimates – marginally…
But it appears the stock is now struggling.
Take a peek –
Technically, we have –
And it’s for all the foregoing that we now offer the following scrumptious plate of latkes and sufganiot –
A Jew and his Money recommends you consider selling the ADP December 31st 225/230 CALL spread* for a credit of $1.60 (8.50/6.90) and buying the ADP December 31st 235/215 PUT spread** for $8.55 (10.90/2.35). Total debit is $6.95.
Rationale: we have a Maccabean opportunity to profit in one month to the tune of $13.05 (max gain) on an initial layout of $6.95.
Max loss is $11.95 (difference between the short CALL strikes plus the initial debit).
Because of the structure of the trade, our breakeven arrives at $223.05, just 2.8% below the current share price.
Additionally, our max loss will only be tallied if the stock rises above $235 by expiry, an eventuality we deem a longshot, considering the stock’s current downside momentum and general market fragility.
A look at the stock’s options chain provides ample evidence that the shares’ upside is now limited. Traders are offering pennies for most short CALL spreads (save the shorter dated ones, like ours), while charging comparatively huge premiums for long PUT spreads. That skew is clearly tilted toward a negative short- to intermediate-term outcome.
The greatest danger to the trade is that we run out of time. A month to see the results we desire is, admittedly, something of a gamble.
And we’re taking it.
These are the days we let the Hellenizers have it. May the Al-mighty G-d be with you.
With kind regards,
Hugh L. O’Haynew