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Thousands in Winnings on Short Gold and Pizza… AND Foxy Shock Absorbers (FOXF, GLD, DPZ/SPY)

Posted on March 1, 2021

Two to close, friends, before we get to our trade for the week.

First up is our GLD short sale whose details can be found here.

Bottom line is we sold at an adjusted $168.55 and GLD closed last at $161.81.

Buy the shares back now and you step out with a fat $6.74.

And that’s all right.

Next up was our DPZ/SPY pairing that arrived on February 4th in Domino’s Falling: Pizza-Maker Delivers Glob of Stale Dough.  There, we urged you to sell the SPY March 19th 375/385 CALL spread for $6.63 and purchase the DPZ March 19th 380/350 PUT spread for $14.40.  Total debit on the trade was $8.23.

And today, we’re heavy on the win side.

The short SPY CALL spread can be repurchased for $6.46 (11.84/5.38), while the long DPZ PUT spread will fetch you $20.70 (32.30/11.60).

That leaves you a net take on the trade of $6.01.

Call it a wallet-fattening 73% in under a month!

That calls for a sandwich!

Now, on to this week’s wham-o offering.

We’re trading the shock-absorber experts today, Fox Factory Holding Corp. (NASDAQ:FOXF), whose shares are priced for a monopolistic takeover over the global suspension market.

That is, they’re a tad stuffed at this point.

Consider

  • The earnings multiple on the stock is an overwhelming 63.42,
  • Price to Book is 7.38, and
  • There’s no dividend.

Y’a buyer?

The technicals also paint a picture of troubled times a’coming.

Have a look at the daily –

Takeaways –

  1. RSI painted overbought in mid-January (circled, in red), and
  2. Ever since, both RSI and MACD have been diverging negatively against price (in green) – bespeaking a loss of momentum for bulls.
  3. RSI has even gone sub-waterline as of last Friday’s trade.
  4. At the same time, a rising wedge formation (in red, at top) is now complete.  Price has broken lower toward next strong support at 100/105, the rising 137 day moving average (in purple).
  5. That lines up well with the simple Fibonacci retracement calculations, one of which would put the decline at 116, the other at 98.

Now, we owe something of an explanation as to why we wrote “poor earnings” on the chart, when the company actually delivered beats on both its top and bottom lines.

What we have here is a two-part explication of the matter –

  • The first, disappointing guidance offered during the earnings call, and
  • Second, the old Wall Street adage: ‘buy on rumor, sell on news’.

However you want to slice it, though, investors are looking to bail on FOXF, and we have no problem joining them.

Like this –

A Jew and His Money recommends you set the FOXF April 16th 125 synthetic short for a $1.30 (9.00/10.30*) debit. Set a STOP buy for the shares at 140.

[*sell the 125 CALL for $9.00 and buy the 125 PUT for $10.30]

Rationale: FOXF options are pricing in a full-scale bearish scenario, with CALL spreads offering a negative take and PUT spreads demanding better than $5.00 for a five point spread.

That means we have to move creatively here.

The synthetic PUT is the best option, because it offers a cheap entrée to the trade and limited downside with the STOP in place.

As for the STOP, it has to be maintained.  That is, should price move through 140, you’ll have to reset a STOP sell at the same level to keep the trade square.  There should always be a STOP in place until we close out.

Maximum loss – should price move straight higher through expiry – is $16.30 (difference between short CALL and STOP, plus initial debit).  This, we view as very unlikely.

Maximum gain is unlimited.

Breakeven for the trade is $123.70 (2.7% below current levels).

With kind regards,

Hugh L. O’Haynew

 

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