Three Fat Winners: 367%, 107% and 13.6% – and A Trip To Sunny Dublin! (APTV, UFPI, CAT, GRWG)

Three to close before we get to today’s action.

Buckle up Henry!

We start with our UFPI initiative, launched on April 26^th in a letter called We’re Loading Up Our Woodies On The Short Sale Side.

The order of the day was to sell the UFPI October 15^th 90 CALL for $3.70 and buy the UFPI October 15^th 65 PUT for $4.00.  Total debit was $0.30.

And now…?

The short CALL trades for $1.25 and the long PUT for $2.65.

Buy back the former and sell off the latter and you take home $1.40 on $0.30 spent.

That’s a NET take of 367% in under three months.  Annualized (for all you math greats out there) makes for a very impressive 1467% return.

CAT Closing

We’re also closing our CAT trade. The details of which can be found HERE.

In short, we’re currently in possession of a $5.95 credit and the September 17^th 210 synthetic short.

And…?

The current price on the short 210 CALL is $8.00, while the 210 PUT is fetching $10.65.

Buy back the first and sell off the second, and you pocket an additional $2.65, bringing your NET haul on the affair to a fulsome $8.60 on $8.00 spent.

And that’s a one hundred and seven percent can of ravioli.

Finally, our GRWG pot trade, whose particulars you’ll find HERE.

The skinny on this one is we’re holding a debit of $0.35 and the October 15th synthetic short at 40.

So, with GRWG now trading at $38.08, the short CALL goes for $4.65 while the long PUT delivers $6.30.

Buy back the CALL and sell the PUT, and you pull in $1.30 NET on an original outlay of $9.50.

That makes for a 13.6% return.

What a high!

For those who feel there’s more downside here, we’d concur.

Support doesn’t arrive until the $33 range (which could add another five points to the winnings).

We’d just hate to see a bounce here that stalls our trip to the bank indeterminately.

Do as you see fit, brother Louie!

All right, we’ve arrived at today’s trade.

And it’s centered on a Dublin-based auto-parts manufacturer called Aptiv PLC (NYSE:APTV), for whom both Matty and I worked night shift before our conversions.

But that’s for another time.

APTV, like everything Irish, is filled with exaggeration.

Consider the fundamentals –

• P/E is rebellious 90.70,
• Dividend Yield is Paddy McZilch,
• Price to Book comes in at a leprechaun-like 5.01, and
• Latest Quarter/Quarter earnings declined by 83.30%.

Now, Sister Mary Margaret,  have a look at the chart –

Technicals look like this –

1. Both RSI and MACD (in green) have been diverging against price, and
2. RSI appears to have sunk sub-waterline.  MACD is still a few days from confirming, but when she does, we’ll have additional technical selling.
3. Volume has fallen from an average of two million shares a day to just over one million (in black), a sign that the bulls may be losing interest.
4. And why not?  Price has bumped up against the 160 line at least four times in the last half year and been repetedly repelled southward (in red).
5. After Friday’s close, a mere two percent decline would sink price below her 137 day moving average at 146 (in blue), the last support line before the stock slides to 135 and, possibly, as low as 121.

Now look at the weekly –

Weekly technicals also point to weakness –

1. First up, a weekly overbought RSI read back in January (in green) was followed by six months of negative divergence, as RSI now prepares to go sub-waterline (red arrow).  This would be a significant event, as it would mark the first time in a year that line was traversed.  Technical traders see weekly readings as more trustworthy events than those posted on a daily chart.  Sub-50 RSI would therefore bring a significant cohort of sellers.
2. At the same time, the long term, rising trendline off the Batflu bottom (in blue) is forming an ascending triangle with resistance at 160, a contrary bullish indication.  Should a break above 160 occur on significant volume, we would likely be forced to reverse course and go long these Celtic Houlihans.  But for the time being, it doesn’t look likely.
3. If the top is in – as we believe – a simple Fibonacci calculation would see a decline as low as 110 (in purple).

And it’s for all the foregoing that we’re playing this sod-codger two ways.

Like this –

A Jew and His Money recommends you consider buying the APTV August 20^th 160/165 CALL spread* for $1.15 (2.50/1.35) and the APTV September 17^th 145/135 PUT spread** for $3.30 (5.80/2.50).  Total debit on the trade is $4.45.

Mind those expiries!

[*Buy the 160 and sell the 165. **Buy the 145 and sell the 135.]

Rationale: Earnings will be released August 5^th, and a lot could happen until then.

Should support at 146 be broken, it’s very likely we’ll see a negative earnings report at that time.

Should the stock play between 150 and 160 over the next week or two, however, an upside surprise is likely in the cards.

We’ll be watching near term action closely.

That said, we’re preparing for both eventualities.  We’re spending $1.15 on the CALL spread for the chance to gross $5.00 in the event of an upside breakout, and another $3.30 on the PUT spread to gross $10.00 should gravity strike.

Maximum gain is $10.55, as we’re dealing with two different expiries (i.e., we could win on both – though it’s unlikely).

Maximum loss is limited to our initial debit ($4.45).

Elokei Yisrael! Tishpot et HaOlam!

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew