Not much going on in May.
We started the month at 4,200 on the S&P 500 (see "Testy Tuesday – S&P 4,200 (again)" for the technical perspective) and this morning we're at 4,196 and the Dow is 1% higher and the Nasdaq is 2.5% lower and the Russell is 4% lower as earnings have, overall, been good but not great and, as I mentioned last week, economic surprises have been mostly to the downside recently. None of this matters at the moment because no one is trading this week with daily volume on the SPY barely 50M, roughly half the normal level (and most of that is automatic pension trading).
There's not a whole lot to do in a week like this and people are simply not into working as it's the first 3-day weekend in more than a year when we can kind of, sort of go out as if everything is normal. Normal enough, in fact, that Fast and Furious #9 made $162M last weekend in foreign markets (it doesn't open here until late June) so that's going to be a blockbuster – the first one in a very long time. IMAX was one of our pandemic picks and we got out when they spiked over $20 in March simply because we had already made 90% of our intended profits and there was still a risk of another virus wave but 40% of the US is now vaccinated and $135M of F9s money was made in China, which is IMAX's #1 foreign market, so I'd say this company is back on track going forward.
At $21.61, IMAX has a $1.28Bn market cap and, pre-pandemic, they were making $50M but they lost $144M last year and this year is likely to be a small loss as well but by 2022, they should be showing the growth that comes from new theater installations that were made duringt he shut-down and, of course, movie releases will be back on track as well. We don't expect a huge move up but we expect steady, long-term growth, which makes it a good candidate for our Butterfly Portfolio as follows:
- Sell 10 IMAX 2023 $20 puts for $4 ($4,000)
- Buy 20 IMAX 2023 $20 calls for $5.75 ($11,500)
- Sell 15 IMAX 2023 $27 calls for $3.20 ($4,800)
- Sell 10 IMAX July $22 calls for $1.20 ($1,200)
- Sell 5 IMAX July $21 puts for $1 ($500)
That's net $1,000 on the $14,000 spread so we have $13,000 (1,300%) upside potential if IMAX is over $27 in Jan, 2023 but the real play here is that Jan 2023 expiration is 604 days away and we've sold $1,700 in premium over 51 days so 10 sales like that would yield $17,000 ON TOP OF the long position.
The base position is the 2023 $20/27 spread that is 3/4 covered and we sold the short puts as we REALLY don't mind owning 1,000 shares of IMAX at $20. After that, we begin "renting out" our position by selling puts and calls and we can sell 10 puts and 5 calls because our long spread has 5 extra longs so the harm to us, should IMAX take off, it no more than the 5 extra short calls and the puts and calls can't both be in the money at the same time. We're not worried about IMAX going up as we have $13,000 coming to us if it does well, which would cover 500 $22 calls all the way to $48. To the downside, our risk increases to owning 1,500 shares eventually – but there are many rolls in our future before that happens and we always play IMAX when it's down so, at $10, we're very likely to double down to average 3,000 at about $15 – that's a worst-case we would be pretty happy with!
Misunderstood stocks like IMAX are fun to play. Traders tend to move the stock up and down violently based on the latest box office which is, of course, not under IMAX's control. Meanwhile, they just keep installing more and more theaters and now they are installing home/yacht theaters at $400,000 a pop – selling 100 of those a year would add 10% to revenues and the full roll-out was delayed by Covid but the company expects to move forward later this year.
Ford (F) is another misunderstood company which, unlike Tesla (TSLA), makes a lot of money selling lots of cars. In a normal year, F makes about $5Bn but last year they lost $1.2Bn and this year they expect to make $4Bn but, at $12.81, you can buy the whole company for $51Bn and we already have a big position on F in our Butterfly Portfolio but we closed it out in our Dividend Portfolio so, for that one, let's:
Sell 20 F 2023 $12 puts for $2.15 ($4,300)
Here's we're promising to buy 2,000 shares of F for net $9.85, which is 23% below the current price. We KNOW we'd love to own F for that price and, if not, we're happy to keep the $4,300.
Ford is making some major electric vehicle announcements today so, for our Future is Now Portfolio, we can add the following play on F:
- Sell 20 F 2023 $12 puts for $2.15 ($4,300)
- Buy 30 F 2023 $10 calls for $4.40 ($13,200)
- Sell 30 F 2023 $15 calls for $2.10 ($6,300)
That's net $2,600 on the $15,000 spread so we've got $12,400 (476%) of upside potential and we're half in the money to start.
See, we're still finding some nice bargains – even in this toppy market.
