Take a Gander at Two Wondrous Wins – 1700% and 1858%; Then Consider a Potential 2567% – ‘Cause I’m the Tax man…’ (HRB, ADM, TLT)

The July options expiry saw our HRB trade bleed $2.00, and that hasn’t sat well with us.

That said, the good Lord works in strange and wondrous ways – and He’s brought us a set-up today using the self-same HRB that’s looks far more lucrative than our first go-round, and will handily cover for the loss – if we’re right.

It holds a potential take of 2567%, and we’ve made a point of structuring the trade to account for both initial costs and potential back-end gains – with the risk fully defined, as always – that we think you’ll be overjoyed to see.

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We’ll get there in a moment.  But first, we have two other initiatives that require your attention – both for the good!

The first involves our ADM trade, which you’ll remember we already closed HERE.

That’s right, Mr. evil communist mainland-China propaganda character.

Well, sort of…

We left one short 90 CALL with a September 16^th expiry open, because we figured the stock had sunk so low that it wasn’t in jeopardy.

But today, with the option trading for just $0.20, we’re invoking ‘prudence is the better part of valor’, and buying it back.

Get it done, and you lower your NET profit on the trade from $1.90 to $1.70 (and your percentage gain from 1900% to 1700%).

Nebuch!

We’ve got another fine profit on the table from our TLT initiative, whose particulars you can find HERE.

In brief, we’re holding the September 16^th 115 synthetic long and a debit of $1.12.

And…?

The short can now be closed for a gain of $3.35 (sell the CALL for $5.45 and buy back the PUT for $2.10) and you come away with a NET gain of $2.23 on just $0.12 originally laid out.

And that’s a spanking new Edsel in your driveway, Roy.

Call it –

1858%!

And now to our tax collector friends at H&R Block (NYS:HRB).

Such he-men…

As mentioned above, at July expiry we were in the red for a full $2.00 on our short CALL spread, but today we’re re-engaging the enemy in the mid-day sun with far greater fire-power.

Tactical Retreat and Counter-Attack

Let’s run through the HRB fundamentals once again, because it’s hard to imagine a stock can continue drifting higher with figures such as these –

• P/E is 31.78, while forward P/E is just 12.05 – indicating a less than favorable outlook going forward from analysts.
• Dividend Yield is a reasonable 2.85% per annum, but
• Price to Book is a clot-inducing 135.54!
• And Debt to Equity is an aorta-plugging 44.23!  How the hell does this sort of thing happen?
• The company’s EPS was DOWN this year by 84.20%,
• Is expected to be DOWN another 9.01% next year,
• Was DOWN on average 24.20% annually for the last five years,
• But posted a single Q/Q gain that put everyone on bennies.

Next earnings are set to be released August 9^th, and frankly, we’re looking forward to them.

This sort of chicanery needs a strong response.

Guillotines, slipknots and the like.

Meanwhile, here’s the chart –

Technically, HRB presents as follows –

1. Both RSI and MACD have been diverging negatively against price for the last 60 days (in green).  That is, prices have been moving higher, but buying momentum is failing; the bears are gaining the upper hand.
2. That’s also evidenced in the steep drop-off in daily volume, shown in black.
3. Price-wise, we see a rising wedge formation (in red) that’s nearing completion.  As we’ve written many times, this pattern is always bearish.  It’s just a matter of time before the lower trendline is broken and price plummets, as it did in early June (in blue).
4. There’s a gap to be filled at $24.50 (in purple), but we don’t see a decline to that level at this stage.
5. Rather, first support at 36 should be tested in the days ahead, and thereafter we could see a decline to the 137 day moving average at 29.

Our trade, however, will deliver its full payload well before then.

And it goes like this –

A Jew and His Money recommends you consider selling the HRB September 16^th 38/42 CALL spread* for a credit of $1.25 (2.05/0.80) and buying the HRB September 16^th 37/33 PUT spread** for the same $1.25 (1.90/0.65).  Net zero premium is the result.

[*Sell the 38 CALL and buy the 42 CALL.  **Buy the 37 PUT and sell the 33 PUT.]

Rationale: you’ve got a potential $4.00 gain here for nothing laid out.  Adjusted for minimal commissions makes that a 2567% win.

Max loss is also $4.00 (difference between the CALL strikes).

We see a two-step drop on the shares – the first to support at 36, where we expect some play, and then a headlong dump toward the rising 137 DMA, where we hope to close.

As always, we’ll keep you apprised.

May the Holy One bless us with the insight and bearings to make it spin right.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew