We had two nice opportunities in our Morning Post:
You can see the replay of the Webinar HERE and we had lots of fun discussions with plenty of actionable trades. Sitting in CASH!!! is very exciting as we have nothing but opportunites in front of us and we're able to pick and choose our spots.
One spot we chose not to pick was Bed Bath and Beyond (BBBY), who I said I liked but I hoped they would miss earnings and disappoint so we could initiate a trade at a cheaper price. Well they did miss and now they are down 12.5% at $21.50, which brings their market cap down to $3Bn DESPITE earning 0.44 per share (vs 0.36 expected) or $63M on $3Bn in revenues. Q4 is half the year for BBBY so 3 x $60M is $180M + another $180M is a super-conservative $360M with a p/e of less than 10 so the sell-off is ridiculous and we would love to add a trade here (though we're not rushing in in case they get cheaper). At the moment I like:
- Sell 10 BBBY 2020 $20 puts for $3.60 ($3,600)
- Buy 15 BBBY 2020 $15 calls for $9.50 ($14,250)
- Sell 15 BBBY 2020 $22.50 calls for $4.50 ($6,750)
That works out to net $3,900 on the $11,250 spread so the upside potential at $22.50 is $7,350 (188%) if BBBY manages to get back over $22.50 in two years. The ordinary margin on the short puts is just $1,783, so it's a super-efficient trade and your worst case is owning 1,000 shares of BBBY at net $23.90, so it's an aggressive trade as the stock is cheaper than that now but we feel it's a great value here BUT, keep in mind we think it will go a bit lower, maybe test $20 so we're probably only going to buy 1/3 now and see what happpens.
