Today – 284% PROFIT! And… Are You a Party to the Destruction of Wall Street? (EXPE, WIX)

Because if you are, Facebook and Twitter gonna gitcha!

We at A Jew and His Money, on the other hand, will aid and abet any and all efforts to stuff oneself silly at the expense of haughty hedge fund managers and corporate banking loudmouths with whom we share (almost) nothing in common.

And with that in mind – we trade!

But first, we’ve got one to close for a full plate of profits.

It’s our EXPE initiative, originally launched on November 23^rd, the details of which can be found here.

In short, we’re holding the EXPE March 19^th 130 synthetic short, along with a debit of $1.56 on the side.

And today, the long 130 PUT goes for $14.35 and the short 130 CALL trades at $8.35.

Sell the former and buy back the latter and you walk with a net $4.44 on $1.56 spent.

And that’s a very hefty 284%.

We’d call that a brilliant day at bat.

Now, Let’s Round the Bases

Today’s action is like this –

We’re directing beanballs at WIX (NASDAQ:WIX) and looking for a knockout.

What’s WIX?

WIX is the free website company that’s never earned a nickel, but whose stock has done nothing but rise since her IPO in 2013.

Consider the fundamentals –  

• WIX has no P/E (on account of negative earnings), but analysts are happy to offer a forward P/E of 3633.09 (!) to justify the current price.  Hmm…
• Price to (comic) Book is a laugh-out-loud 15.17,
• There’s no yield, but
• There is a sky-high Debt to Equity ratio of 3.08 (gasp!),
• Earnings this year (this Wuhan Batflu year, when all things internet are soaring) are down 120%, and
• Quarter over quarter, they’re down 200.70%.
• And, as mentioned above, in the eight years since the company got its listing, it has yet to post a quarter with positive earnings.

YOU GOTTA BE KIDDING ME!

Which brings us to the charts.

Have a look here –

Technically, we’re looking at –

1. A descending triangle, a pattern that will lead to a strong decline when support at 240 is fractured (in red),
2. A moving average rollover (at top, in blue), which generally places a cap over price, particularly when it’s the all-important 137 DMA, as we see here.  Next stop lower is the 274 DMA at WIX 215 (lavender line – no, wait… more a mauve).
3. Lastly, we see both RSI and MACD hugging their breakeven waterlines for better than five months now (in green), indicating a breakout is inevitable.

Now have a peek at the weekly –

The weekly technicals show…

• Both RSI and MACD careening lower, with MACD but ten or so trading sessions from breaking below her waterline (in green).  That would offer technicians a very strong reason to sell.  Whether they choose to front-run that event, as we are, is a separate question.
• In other news, price clearly got too far from her long term moving averages (definitely mauve).  Arriving at three times the 274 week MA, there was little hope of further gains.  We’ll now see a pullback toward the 137 WMA, currently at 160 and rising.
• Simple Fibonacci calculations bring price to WIX 269 and/or 166, the latter of which aligns well with our target at the 137 week MA.

WIX will have to come clean with Q4 earnings on Wednesday, February 17, at which point we expect the ground to open and a wailing of sirens to herald the swallowing of WIX like a TWIX.

Our trade goes like this –

A Jew and His Money recommends you buy the WIX March 19^th 230 PUT for $14.90 and sell the WIX March 19^th 200 PUT for $3.40.  Total debit on the trade is $11.50.

Rationale:  Our trade is geared for the short term and is therefore more speculative in nature.

We’ve chosen the shorter time horizon because the triangle pattern is already six months old and doesn’t have a great deal of space remaining to tighten.  We therefore believe a break is imminent, and seven weeks (before expiry) should suffice.

Separately, we note that options on WIX are priced for a tumble.  That is, all short CALL spreads, regardless of expiry, offer a negative premium – meaning the market will not allow investors to sell premium safely, only via naked CALLs – a sure enough sign there’s little to no upside remaining.

Maximum gain on the trade is $18.50 (difference between strikes less initial premium).

Maximum loss is $11.50 (initial premium).

Breakeven arrives at WIX $218.50.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew