2 from the Morning Report and one from Member Chat:
We'll be shopping for companies that are likely to benefit from the GOP Tax Plan. CFRA put up a list of potential big winners of the GOP tax plan and Oracle (ORCL) just reported yesterday and is selling off a bit, but we think they are playable here ($47.50) for a nice, long entry:
- Sell 5 ORCL 2020 $47 puts for $6 ($3,000)
- Buy 10 ORCL 2020 $45 calls for $8 ($8,000)
- Sell 10 ORCL 2020 $52.50 calls for $4.75 ($4,750)
That spread is net $250 cash on the $7,500 spread so your potential net profit at $52.50 is $7,250 (2,900%) and your worst case is owning 500 shares of ORCL for net $47.50, which is the current price. While we limit our upside we have great leverage and we're starting off $2,500 in the money so even a flatline from here will be a nice winner. Ordinary margin on the play is $2,708 so the return on margin is fantastic as well.
While ORCL may be disappointing the bulls this morning, the growth in their cloud platform to $1.5Bn (up 55% from last year), their large pile of overseas cash and their huge benefit from changes in the tax code should get them back over $50 very quickly – even if they have to buy back their own stock to get there.
Another good group of companies to look at are the companies that are paying a high effective tax rate. This table was compiled by Credit Suisse. Kinder Morgan (KMI) at $17.85 is a good one to look at and Schlumberger (SLB) at $62.50 is still cheap as well, coming off a down year and moving into a better cycle. Both rely on the energy sector, which I'm down on but KMI is more of a natural gas play, which I'm long on – so let's set up a trade with them as:
- Sell 10 KMI 2020 $17 puts for $2.35 ($2,350)
- Buy 30 KMI 2020 $17 calls for $2.85 ($8,550)
- Sell 30 KMI 2020 $20 calls for $1.55 ($4,650)
Here we are netting $1,550 on the $9,000 spread so the upside potential at $20 is a $7,450 (480%) and worst case is owning 1,000 shares of KMI for net $18.55, which is aggressive as it's more than they are selling for now but I think KMI is way too cheap here, given both the tax advantage and the expected increase in traffic as the US pushes more and more Natural Gas overseas on LNG ships.
