Risk off was the theme last week as traders are once again worried about sticky inflation, and now there is growing fear of further war in the Middle East. And while those are two big worries, big picture it wasn’t a terrible week for the indexes as the S&P 500 and Nasdaq both fell 1.6%, while the Dow lost 2.36%
The Stock – Coupang (CPNG)
Coupang is the dominant online retailer in South Korea. Like Amazon.com, it sells everything from electronics to groceries, performs its own logistics and offers its own video streaming service.
Coupang’s management takes a long-term look at entering new businesses—it spent years and billions of dollars creating its own fulfillment and logistics business from scratch, and that’s now become a growth area with entrepreneurs launching businesses on the Coupang app using the company as their fulfillment partner.
Now management is focusing on two new projects, the first of which is going more upscale and expanding its markets outside of Korea: In January, Coupang acquired Farfetch, a global digital brand for luxury products—mainly apparel but also home goods, jewelry and other accessories; Coupang paid $500 million for it and expects it will take a restructuring charge this period as part of consolidating it into its operations. But management expects to make Farfetch self-funding in a few quarters and to make it a big player in the still-fragmented global luxury retailing business.
As for the second move, Coupang jumped into Taiwan under the brand Rocket in late 2022 and, while there’s a lot of money being spent to build this business (hundreds of millions of dollars this year alone), management sees that country on track to be profitable in the near future.
In 2023, Coupang overall generated $24.4 billion in revenue, and net income of $0.26 a share, while Wall Street sees $28.7 billion with $0.29 EPS this year—though that could prove conservative following the just-announced big price hike for its Wow membership program, which offers customers a variety of benefits (and which also displays its belief that clients should be relatively sticky). It’s a good growth story.
Technical Analysis
CPNG crashed into its bear market low in mid-2022 and, after a couple of months of rebounding, set a high near 21—and that high has basically been in place since, rejecting a few rally attempts in late 2022 and again last summer, the latter of which led to a sharp 32% dip. But CPNG spiked nicely off its lows on big volume, and after resting for five weeks south of 20, boomed last week (especially last Friday) after the Wow price hike. Stop — 18
The Covered Call Trade
Buy Coupang (CPNG) Stock at 22, Sell to Open May 22.5 Strike Calls (exp. 5/17) for $1, or a Net Price of 21 or less
Static Return: $100 per covered call (4.76%)
Breakeven: 21
Covered Call Return (if assigned): $150 per covered call (7.14%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 21 or less. (In this case 22 minus 1 = 21. Or another example is you could pay 21.85 for the stock and sell the call for 0.85, which also equals 21.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| JFrog (FROG) | 44.75 | 37 | 36 | April 45 -- $2.90 | $0.05 |
| Robinhood (HOOD) | 15.85 | 17 | 13.4 | April 17 -- $0.95 | $0.50 |
| Samsara (IOT) | 38.7 | 30 | 33 | April 40 -- $2.20 | $0.05 |
| Permian Resources (PR) | 16.7 | 17.5 | 14.2 | May 17 -- $0.75 | $1.00 |
| Toast (TOST) | 24.05 | 22.5 | 20 | May 25 -- $1.75 | $1.00 |
| CNX Resources (CNX) | 23.9 | 23.5 | 21 | May 24 -- $1.08 | $0.80 |
| Eldorado Gold (EGO) | 15.45 | 14.75 | 12.7 | May 16 -- $0.70 | $0.50 |
The next Cabot Profit Booster issue will be published on April 23, 2024.
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