The market was already weak before Yellen called stocks overvalued. That comment opened the trap door under the market. Add in the delay in the Senate vote on healthcare and the decline accelerated.
The Nasdaq is threatening to retest support at 6,100 and the third time is rarely the charm. We could be in for a rocky ride unless sentiment changes significantly before morning.
We were killed in the Nasdaq crash. We lost 5 positions including promising stocks like Netflix, Shopify and Activision.
Stop Loss Updates
Check the graphic below for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Current Position Changes
ADSK - Autodesk
The long call position was stopped out at $103.45.
ATVI - Activision
The long call position was stopped out at $59.50.
JCOM - J2 Global
The long call position was stopped out at $86.65.
NFLX - Netflix
The long call position was stopped out at $150.85.
SHOP - Shopify
The long call position was stopped out at $87.85.
If you are looking for a different type of option strategy, try these newsletters:
Credit spreads and naked puts = OptionWriter
Long term option investments = LEAPS Investor
3-6 month Option Trades = Ultimate Investor
Iron Condors = Couch Potato Trader
Long and short equity trades = Premier Investor
BULLISH Play Updates
ADSK - Autodesk Inc - Company Profile
No specific news. The Nasdaq crash caused a 3% drop to stop us out.
Original Trade Description: June 19th.
Autodesk, Inc. operates as a design software and services company worldwide. The company's Architecture, Engineering and Construction segment offers Autodesk Building Design Suites to manage various phases of design and construction; Autodesk Revit products that offer model-based design and documentation systems; Autodesk Infrastructure Design Suites; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution; and AutoCAD Map 3D software for infrastructure planning, design, and management. Its Platform Solutions and Emerging Business segment offers AutoCAD software, a professional design, drafting, detailing, and visualization software; and AutoCAD LT, a professional drafting and detailing software. The company's Manufacturing segment provides Autodesk Product Design Suites for digital prototyping; Autodesk Inventor to go beyond 3D design to digital prototyping; AutoCAD Mechanical software to accelerate the mechanical design process; Autodesk Moldflow, an injection molding simulation software; Autodesk Delcam, a CAD and computer-aided manufacturing software; Autodesk PLM 360, a product lifecycle management application; and Autodesk Fusion 360, a product development environment. Its Media and Entertainment segment offers Autodesk Maya and Autodesk 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and Autodesk Flame and Autodesk Lustre software applications that offer editing, finishing, and visual effects design and color grading solutions. Autodesk, Inc. sells consumer products for digital art, personal design and creativity, and home design in digital storefronts and over the Internet. It licenses or sells its products to customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries directly, as well as through resellers and distributors. Company description from FinViz.com.
Autodesk (ADSK) reported a loss of 28 cents that beat estimates for a loss of 33 cents. Revenue of $478.8 million beat estimates for $474.1 million. The company is losing money because they are converting from a software sales model to a subscription model and that always causes a short fall in the first 12-24 months of the process but results in larger profits in the future. New subscriptions rose 26% to 1.09 million, up 227,000 from the same period in 2015.
The company guided for the current quarter for a loss of 21-27 cents on revenue of $460-$480 million. Analysts were expecting $503 million and a 13-cent loss. Shares declined $2 on the news.
Earnings Aug 17th.
The stock spiked to $114.50 on the earnings in May and then faded on colsolidation until the Nasdaq flash crash the prior week. Being a tech stock it imploded with the rest of the tech sector. The rebound followed the pattern of the rest of the large cap tech stocks. A couple days higher and then a retest of the decline. Shares rebounded today on short covering with the rest of the market. I believe, market permitting, we will see shares break back above resistance at $108 and move on to new highs.
Shares could get a bounce when Adobe reports earnings on Tuesday.
Update 6/20/17: The CEO said today the global building boom is a big boost for Autodesk revenue. You have to have a program to build a building today and that program has to be linked to dozens or even hundreds of smartphones. All of that is a positive for Autodesk.
Closed 6/27/17: Long Aug $110 call @ $3.85, exit $103.45, -1.55 loss.
ATVI - Activision Blizzard - Company Profile
No specific news. The Nasdaq crash caused a 3.2% drop to stop us out.
Original Trade Description: May 22nd.
Activision Blizzard, Inc. develops and publishes games for video game consoles, personal computers (PC), mobile devices, and online social platforms. The company operates through three segments: Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The company develops, publishes, and sells interactive software products and entertainment content through retail channels or digital downloads; and downloadable content. It also publishes subscription-based massive multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution and licensing arrangements in the United States, Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. Activision Blizzard, Inc. was incorporated in 1979 and is headquartered in Santa Monica, California. Company description from FinViz.com.
Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year, they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.
Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.
Activision is a powerhouse with rapidly rising revenue and multiple game titles arriving in the coming months.
Earnings August 3rd.
Shares dropped sharply with the market last Wednesday and have already rebounded to close at a new high today.
Position 5/23/17 with an ATVI trade at $57.75:
Closed 6/27/17: Long August $60 calls @ $2.24, exit $2.63, +.39 gain
Previously closed 6/9/17: Long August $60 calls @ $2.66, exit $2.02, -.64 loss.
BABA - Alibaba - Company Profile
JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating. Shares declined just over $1 in a very bad market.
Original Trade Description: June 10th.
Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com
Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.
When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.
The company announced plans to buy back $6 billion in stock over a two-year period.
Earnings August 18th.
Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.
There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.
Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.
Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.
Position 6/19/17 with a BABA trade at $139.50
Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.
FB - Facebook - Company Profile
Mark Zuckerberg said Facebook had reached 2.0 billion active users. Now Mark is focused on getting those users to join groups. The more groups the better because those groups generate ad impressions just like your regular page.
Now if we could just get them all to buy stock that would be great. Shares fell $3 in the Nasdaq decline and narrowly avoided being stopped out.
Original Trade Description: May 17th.
Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.
Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.
Facebook said the new Instagram Stories product has reached 250 million daily users compared to Snap's 160 million for the same function.
Earnings August 2nd.
Facebook had been moving sideways since hitting the $153 high post earnings. Volatility was low and investors were just waiting for a market dip so they could get a better entry point. Share fell to uptrend support at $145 and even if they due decline further there is strong support around $140.
Update 5/18/27: Facebook was fined $122.4 million by EU regulators for giving them false information in the WhatsApp acquisition process. The EU asked how many WhatsApp users were also Facebook users and the company said it did not know and did not have way of matching the usernames. A year after the acquisition Facebook launched a service that did match users and the EU said they had the capability all the time.
The company also announced a new effort to reduce "clickbait" headlines and punish websites that continually publish fake news. I hope they are successful.
Update 5/19/17: Facebook is going to live stream 20 Major League Baseball Friday night games. The company also said it was adding an "Order Food" option to let some users order, pay and have food delivered or be available for pickup. The service works with restaurants that use Delivery.com or Slice.
Update 5/22/17: Facebook shares were weak after the BROWSER bill was introduced in the House. Websites and browsers must get explicit permission from users in order to collect and use personal data including browser history, search terms, cookies, etc. They also cannot deny you the use of their program if you decline to give them permission to use your data. While the bill has little chance of passing it was a wet blanket on Facebook today.
Update 5/24/17: Reuters reported that Facebook has signed content deals with Vox Media, Buzzfeed, ATTN, Group Nine Media and others to begin creating shows for its upcoming video service. They are going to develop both short and long form content with ad breaks included. The first scripted shows will be up to 30 min which Facebook will own. The second tier will be shorter scripted and unscripted shows with episodes lasting 5-10 minutes.
Update 6/14/17: Facebook has built an AI that learned how to lie to get what it wants. Can Skynet be much farther into the future? Facebook fed the AI computer the text messages from 5,808 human conversations where they negotiated for some specific outcome either an item, event or decision. Then they tried to negotiate with the computer over some items each were given. The key was for the computer to end up with a specific item. During the testing they found that the computer had learned to lie to misdirect the opponent from the item the computer actually wanted. This is scary. Extrapolate this into a much larger environment with millions of conversations to learn from and the outcome could be an entirely new level of computer consciousness.
Update 6/16/17: Facebook said it was using artificial intelligence (AI) to search out terrorist accounts and propaganda in its pages. The company has already deleted hundreds of thousands of accounts and it making it harder for users to reopen new accounts under different names. Fortunately, Facebook has years of history from those deleted accounts and has developed algorithms to compare new account activity against those old posts and automatically discover and delete new terrorist accounts.
Long Aug $150 call @ $4.75, see portfolio graphic for stop loss.
Previously closed 6/9/17: Long Aug $150 call @ $4.90, exit $6.80, +$1.90 gain.
IWM - Russell 2000 ETF - ETF Profile
Not a good day for the Russell and this may have killed this position. However, the Russell only declined half as much as the Nasdaq.
Original Trade Description: June 22nd.
The Russell 2000 represents the 2,000 smallest stocks in the Russell 3,000, which is the largest 3,000 stocks in the market. They are routinely called the small cap stocks but the index contains a lot of midcap stocks as well. There is a smaller index called the Russell Microcap index for even smaller stocks.
On the Friday in June after quadruple witching expiration, Russell rebalances their indexes. Some stocks move up from the R2K to the Russell 1000 and some move down from the 1000 to the 2000. Other stocks are added like IPOs or stocks that have grown to the point where they qualify for insertion. Others that are in a downtrend, have seen their market cap shrink and they no longer qualify for inclusion.
Russell put out their updated list of additions and deletions last week. All the fund managers that index to the Russell indexes have to buy the additions and sell the deletions at the close on Friday. A lot will actually do it at the close but some have been making changes for the last several days. A lot will begin selling earlier in the day to avoid the rush.
Since selling a stock that is technically still in the index until the close will make index decline, the Russell 2000 "should" close at the low for the day. Buying additions to the indexes on Friday has no impact on the indexes since they are not technically index components until Monday. Since fund managers will be adding positions and adjusting most of next week, the index should rise.
In theory, the Russell should decline into the close on Friday. I am recommending a short-term call on the Russell IWM ETF. We only want to hold it a week or maybe two.
Long July $141 call @ $1.60, see portfolio graphic for stop loss.
JCOM - J2 Global Inc - Company Profile
No specific news. Shares followed the Nasdaq lower to stop us out.
Original Trade Description: June 17th.
j2 Global, Inc., together with its subsidiaries, engages in the provision of Internet services worldwide. It operates through two segments, Business Cloud Services and Digital Media. The Business Cloud Services segment offers cloud services to sole proprietors, small to medium-sized businesses and enterprises, and government organizations. This segment provides online fax services under the eFax, MyFax, eFax Plus, eFax Pro, eFax Secure, eFax Corporate, and eFax Developer names; on-demand voice and unified communications services under the eVoice and Onebox names; online backup and disaster recovery solutions under the KeepItSafe, LiveDrive, LiveVault, and SugarSync names; hosted email security, email encryption, and email filtering and archival services under the FuseMail name; email marketing services under the Campaigner name; and cloud-based customer relationship management solutions under the CampaignerCRM name. The Digital Media segment operates a portfolio of Web properties, including PCMag.com, IGN.com, Speedtest.net, AskMen.com, TechBargains.com, Offers.com, and Everydayhealth.com that offer technology products, gaming and lifestyle products and services, news and commentary related products, speed testing for Internet and network connections, and online deals and discounts for consumers, as well as professional networking tools, targeted emails, and white papers for IT professionals. This segment also sells display and video advertising solutions, as well as targets advertising across the Internet; sells business-to-business leads for IT vendors; promotes deals and discounts on its Web properties for consumers; and licenses the right to use PCMag's Editors' Choice logo and other copyrighted editorial content to businesses. Company description from FinViz.com.
Very few business people would not recognize some of their brands including eFax.com, PCMag.com, TechBargains.com, etc.
The reported earnings of $1.14 that rose 12% but missed estimates by 7 cents. Revenue rose 27% to $254.7 million and also missed estimates for $258.5 million. However, they raised full year guidance to $5.60-$6.00 and $1.13-$1.17 billion. Analysts were expecting $5.59 and $1.15 billion. They also announced a dividend increase to 37.5 cents. Digital media revenues rose 81.5% to $113.1 million.
Estimates earnings August 7th.
Shares declined from $91.50 to $80.50 on the May 9th earnings and have recovered to $87.50. They are about to break out to a six week high. They have been relatively stable in the recent market weakness.
Closed 6/27/17: Long Sept $90 call @ $3.80, exit $2.65, -1.15 loss.
NFLX - Netflix - Company Profile
Vimeo said it has cancelled plans to create a Netflix like subscription streaming service for 2018. Last year the company said it was planning on spending "tens of millions of dollars" on the future service.
Original Trade Description: May 17th.
Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 100 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com.
Netflix posted blowout earnings and shares rocketed higher to hit $161 on Monday. I have been waiting for three weeks for a pullback. Analysts are projecting higher highs with the high price targets at $175. There have been continuous rumors that either Disney or Apple will try to buy them not only to acquire the platform but to keep the other company from acquiring it. Both have said they want to have a big presence in streaming. Tim Cook just said it last week. Both have the cash and Disney has billions of dollars in content it can immediately add to the platform.
Netflix is expected to add 3 million subscribers in Q2. They are testing higher prices in Australia to see what price levels will cause subscriber flight. Once they figure it out you can bet they will apply it to the rest of their 100 million customers. That is instant profit. Bumping rates by $5 gets them another $500 million a month in revenue.
They announced with earnings they were finally entering China through a partnership with the largest existing streamer in China. This is one more step to a full release in the future.
Update 5/18/17: The FCC voted 2-1 to roll back the 2015 net neutrality order from President Obama. Some say this will impact major internet users like Netflix. However, the company said last month that elimination of the order would not have any impact on their business because they were big enough and had a broad enough customer base that ISPs would not try to slow down their streaming traffic. The order prevented ISPs from charging for faster bandwidth for heavy users. Netflix is responsible for 40% of the internet traffic in peak hours.
Update 5/22/17: Netflix expects to have 102 million subscribers by the end of Q2 with 51.45 million in the U.S. and 50.49 million internationally. Three years ago the company only had 11 million international subscribers. They expect international numbers to exceed U.S. subscribers by the end of the third quarter. With international subscribers growing roughly 3 million per quarter they should reach 100 million in 2020 as acceptance continues to grow. That puts them on track for 200 million total subscribers by 2025.
Update 5/27/17: Piper Jaffray reiterated an overweight rating this morning but raised the price target from $166 to $190. The analyst said Netflix probably low-balled the company's 2020 earnings expectations by as much as half. The analyst said it the international viewers grow as well over the next 10 quarters as the last 10 then expectations could be 100% too low. They believe Netflix could have 180 million international subscribers by 2020. Jaffray said the total addressable market of broadband viewers could be more than 765 million by 2020.
MKM Partners also raised their price target from $175 to $195.
Update 6/2/17: Tom Lee of Fundstrat said "stick with the FANG stocks in 2H-2017 for 20% to 40% additional gains." Netflix added $2 to a new high close.
Update 6/6/17: Cantor Fitzgerald raised their price target from $165 to $190 saying international subscriptions are set to surge. The analyst said Netflix has 50% penetration in the US households with broadband access but only 5.7% internationally. He expects that international number to rise dramatically as advertising and acceptance grows.
Update 6/13/17: Netflix partnered with telecom giant Altice and will begin rolling out pay services in France, Portugal, Israel and the Dominican Republic in the coming months.
Update 6/20/17: Guggenheim raised their price target from $175 to $180 and reiterated a buy rating. Netflix has started releasing interactive shows where the viewer gets to choose the path the hero takes. Whenever the hero reaches the proverbial fork in the script, the viewer can decide which option the character takes. The first one is an animated cartoon with 13 direction options throughout the show. There are more already in production.
Earnings July 17th.
We have to use a spread because options are still expensive.
Closed 6/27/17: Long July $160 call @ $4.96, exit $3.93, -1.03 loss
Closed 6/27/17: Short July $175 call @ $1.65, exit $1.07, +.58 gain.
Net loss 45 cents.
Previously closed 6/9/17:
Long July $160 call @ $6.45, exit $7.50, +1.05 gain.
Short July $175 call @ $2.16, exit $2.41, -.25 loss.
Net gain 80 cents.
PYPL - PayPal - Company Profile
No specific news. Shares did not decline as violently as other tech stocks.
Original Trade Description: June 21st.
PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.
PayPal started out as a payment system for Ebay. Since then they have moved into dozens of areas including credit cards, peer to peer payments. Instead of being locked into one business model, they are rapidly expanding to multiple business models. Recently they partnered with MasterCard and Visa to have their digital payments processed on their systems. The company is expanding the scope of its Venmo payment platform, which handled $6.8 billion in Q1, up 114%. This peer to peer app will now allow you to pay for goods at any merchant that accepts the app, just like Apple pay.
In Q1 PayPal revenue rose 17% to $2.975 million and earnings rose 5%. Total accounts rose 23% to 203 million. As a comparison, Mastercard's revenue was less at $2.7 billion. That is a shocker to most people.
With their Q1 earnings, PayPal committed to buy back $5 billion in stock.
Expected earnings July 26th.
Shares dipped with the Nasdaq tech crash but are recovering. Their recent high was $55 and shares closed at $53.50 today. Options are inexpensive.
Long August $55 call @ $1.58, see portfolio graphic for stop loss.
RH - RH Inc - Company Profile
Amazing relative strength to gain $2.50 in this market and on no news.
Original Trade Description: June 26th.
RH, together with its subsidiaries, operates as a retailer in the home furnishings market. The company offers products in various categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and child and teen furnishings. It provides its products through its retail galleries and Source Books, as well as online through rh.com, rhmodern.com, restorationhardware.com, rhbabyandchild.com, rhteen.com, and waterworks.com Websites. As of January 28, 2017, the company operated 85 retail galleries, including 50 legacy galleries, 6 larger format design galleries, 8 next generation design galleries, 1 RH modern gallery, and 5 RH baby and child galleries in the United States and Canada; 15 Waterworks showrooms in the United States and the United Kingdom; and 28 outlet stores. The company was formerly known as Restoration Hardware Holdings, Inc. and changed its name to RH in January 2017. Company description from FinViz.com
RH reported earnings of 5 cents that beat estimates for 4 cents. Revenue of $562.1 million beat estimates for $560.4 million. However, they guided for Q2 earnings of 38-43 cents and analysts were expecting 53-75 cents. That is not a misprint.
The company said it was ditching its prior merchandising model and switching to a membership model in order to make the company Amazon proof and enhance the customer experience. They are moving away from the highly promotional retail experience with constant sales and discounts and moving to a membership model where the focus will be on the customer experience. "Members" will pay $100 a year for the ability to shop in a high quality store where they will find only high quality merchandise.
The Costco CEO once told Jeff Bezos at an event that once people buy a membership they no longer price shop. Bezos went on to create Amazon Prime where customers pay $99 a year for a membership and the rest is history. RH is trying to duplicate that experience.
Shares crashed 26% to $42 on the guidance but the rebound has been amazing. Apparently, investors like the concept and the idea of a "Costco" model but in high quality products.
Earnings August 31st.
Shares closed at a 52-week high on Monday as shorts are being forced to cover. There are a lot of shorts! The surge over the May highs should be a trigger for an entirely new round of short covering.
Options are expensive because of the rapid gain since they changed the retail model. I am using September to retain that earnings expectation premium. We can buy time but we do not have to use it.
Long Sep $65 call @ $5.20, see portfolio graphic for stop loss.
Short Sep $75 call @ $1.26, see portfolio graphic for stop loss.
Net debit $3.94.
SHOP - Shopify - Company Profile
No specific news. SHOP imploded with a $5 drop to stop us out. Fortunately, we had bought the prior dip so we only lost 30 cents in the position.
Original Trade Description: May 31st.
Shopify Inc. provides a cloud-based multi-channel commerce platform for small and medium-sized businesses in Canada, the United States, the United Kingdom, Australia, and internationally. Its platform provides merchants with a single view of their business and customers in various sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces; and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships, and leverage analytics and reporting. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011. Company description from FinViz.com.
The company reported a Q1 loss of 4 cents compared to estimates for a loss of 11 cents. Revenue rose 75% to $127.4 million and beat estimates for $122.1 million. Merchant solution revenue rose 92% to $65.3 million and subscription revenue rose 60% to $62.1 million. They guided for Q2 to revenues of $142-$144 million and the full year for $615-$630 million. That is above their prior guidance of $580-$600 million.
Expected earnings August 1st.
The company was very positive about the future outlook. On May 18th they announced a secondary offering for $500 million at $91 per share. The stock dropped from $91 to $81 on the news but immediately recovered. Wednesday's close was a two-week high after that announcement.
SHOP has been discussed multiple times as takeover bait for Ebay or Amazon. Neither company will comment but Amazon would be the likely player. They could gobble up Shopify at $7 billion like a late night snack.
I believe shares are going to resume their upward momentum now that the secondary offering has been consumed by the market.
Update 6/5/17: The S&P/TSX index is considering whether to add SHOP to the Canadian index. That would equate to about 5.4 million shares of additional buying from index funds. The rule change that would allow SHOP to benefit is out for comment until June 9th.
I wanted to buy calls that expire after earnings but there are no August strikes yet. The next strike in October is too expensive. Even the short-term strikes are expensive so I am going with a July spread to reduce the risk.
Position 6/19/17 with a SHOP trade at $89.25:
Closed 6/27/17: Long July $95 call @ $3.20, exit $2.27, -.93 loss.
Closed 6/27/17: Short July $105 call @ $1.26, exit $0.63, +.63 gain.
Net loss 30 cents.
Previously closed 6/9/17:
Long July $95 call @ $5.25, exit $5.00, -.25 loss.
Short July $105 call @ $2.35, exit 2.50, -.15 loss.
Net loss 40 cents.
THO - Thor Industries - Company Profile
No specific news. Only a minor decline since it is not a tech stock.
Original Trade Description: June 24th.
Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com
In a weak economy, Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.
Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.
Estimated earnings date September 4th.
With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. Over the last week they have returned to $108 and Friday's close was a four-month high.
Winnebago (WGO) reported earnings last week of 94 cents and analysts expected 66 cents. These blowout numbers by both companies prove how strong the sector really is. We can thank low oil prices for part of the surge in RV sales.
I believe we will see Thor continue to stretch its gains and head back to the highs at $115. I am using a September spread because of the high option premiums and September earnings date. We will exit well before then but that date will keep the premiums inflated.
Long Sept $110 call @ $4.55, see portfolio graphic for stop loss.
Short Sept $120 call @ $1.46, see portfolio graphic for stop loss.
Net debit $3.09.
BEARISH Play Updates (Alpha by Symbol)
FL - Foot Locker - Company Profile
No specific news. FL posted another minor gain but it is still struggling. Investors cannot make up their mind to buy or sell. I am going to give the position one more day.
Original Trade Description: May 15th.
Foot Locker, Inc., through its subsidiaries, operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. As of January 28, 2017, it operated approximately 3,363 mall-based stores, as well as stores in urban retail areas and high streets in the United States, Canada, Europe, Australia, and New Zealand. The Direct-to-Customers segment sell athletic footwear, apparel, equipment, team licensed products, and private-label merchandise through Internet and mobile sites, and catalogs. This segment operates sites for eastbay.com, final-score.com, eastbayteamsales.com, and sp24.com, as well as footlocker.com, ladyfootlocker.com, six02.com, kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com, and sidestep-shoes.com. The company has agreements with third parties for the operation of 54 Foot Locker franchised stores in the Middle East and 5 franchised stores in the Republic of Korea; and operates 15 stores under the Runners Point banner in Germany. Foot Locker, Inc. was founded in 1879 and is headquartered in New York, New York. Company description from FinViz.com.
Foot Locker reported earnings of $1.36 that missed estimates for $1.38 and lower than the $1.39 reported in the year ago quarter. Revenue of $2.0 billion missed estimates for $2.02 billion.
The company blamed a delay in tax refunds for slow sales. Some refunds for poverty level consumers cannot be issued until after February 15th. I guess if you are on welfare and food stamps you need an "earned-income tax credit" refund to buy an expensive pair of Michael Jordan or Steph Curry shoes.
However, the CEO said the slow start in February was NOT offset by stronger sales in March and April. Doesn't that throw cold water on the tax refund excuse? Add in the rapid decline of the malls and their 3,363 mall based stores and the outlook is not good.
Same store sales rose only 0.5% and analysts were expecting 1.4%. Shares crashed 15% on the news and have not slowed the decline since then.
Estimated earnings date August 18th.
I kept thinking they would find a bottom and rebound. However, Tuesday's close was a three year closing low and the decline is accelerating rather than slowing. Finish Line (FINL) reports earnings on Friday and weak earnings there could be another weight on the sector.
This position was recommended on Tuesday but the stock gapped down $3 at the open on news that Nike might be considering selling its products on Amazon. That would be a killer for Foot Locker.
Since the stock gapped lower at the open the position was not entered. The option price more than doubled at the open to more than $2 and then dropped back to $1.45 at the close. I am recommending we enter the position at the open on Thursday now that the hysteria has passed. Long term, I still expect the stock to move lower.
Long August $45 put @ $1.75, see portfolio graphic for stop loss.
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