Before I dive into this morning’s Cabot Profit Booster covered call idea, I wanted to mention that the Mintz family will be traveling to Europe this Wednesday through the following Wednesday.
That means we will simply let our August positions expire this Friday, and we will not be sending a new trade next week. However, I will address August positions if needed when I return.
Moving on …
Last week was an all-timer of a week as the S&P 500 at the lows on Monday was down nearly 5% and then managed to finish the week mostly unchanged. Now that is some volatility!
By week’s end, the S&P 500 was virtually unchanged, the Dow had fallen 0.6%, and the Nasdaq had lost 0.2%.
The Stock – Coupang (CPNG)
Coupang is one of South Korea’s leading e-commerce platforms, billing itself as providing “exceedingly fast” shipping speeds on millions of items including apparel, fashion and beauty products, electronics and fresh groceries—all delivered within hours nationwide, 365 days a year.
Outside of its native country, the company is wildly popular in Asian markets like China and Hong Kong, recently expanding into Japan and Taiwan. And while it doesn’t currently offer a consumer-facing e-commerce platform in the U.S., it supports commercial expansion and partnership between U.S. and South Korean businesses (its stock was publicly listed on the NYSE in 2021, accounting for 35% of all U.S. foreign direct investment into Korea over the last couple of years), and Coupang does offer limited sales of its products to U.S. customers from its platform.
Highlighting the growth story, last week’s Q2 report featured a 25% year-on-year revenue jump, to $7.3 billion, plus earnings of 7 cents that beat estimates of breakeven. Meanwhile, product commerce segment adjusted EBITDA rose $122 million, to $530 million, and free cash flow improved by an eye-opening 40% to $1.5 billion (all reasons for the stock’s latest strength). Other metrics were equally impressive, including a 12% bump in product commerce active customers, reaching nearly 22 million. To that end, Coupang said its future growth opportunity is “massive and largely untapped,” and that that while new customers contribute to the growth, its recent expansion has been primarily powered by the increasing spend of its existing customers.
Going forward, the company is focused on unlocking what it sees as the “exciting” potential for “steady and thoughtful growth” in its recent acquisition of global online luxury clothing and beauty product firm Farfetch. Wall Street predicts a 24% top-line jump for 2024, followed by several years of 15%-ish growth with earnings turning up next year.
Technical Analysis
CPNG had a nice off-the-bottom run from February into April, but despite some tight trading initially, the stock sagged below its 50-day line in June and continued to nose lower for the next few weeks. The stock experienced a fair share of market-induced volatility of late, including a crazy 11% intraday up-and-down move ahead of last week’s earnings, but we like the support at the 40-week line as well as the post-earnings action, with shares ripping back to within a point of their high. Stop – 20
The Covered Call Trade
Buy Coupang (CPNG) Stock at 23, Sell to Open September 23 Strike Calls (exp. 9/20) for $0.90, or a Net Price of 22.10 or less
Static Return: $90 per covered call (4.07%)
Breakeven: 22.10
Covered Call Return (if assigned): $90 per covered call (4.07%)
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 22.10 or less. (In this case 23 minus 0.90 = 22.10. Or another example is you could pay 22.75 for the stock and sell the call for 0.65, which also equals 22.10)
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 |
| Pan American Silver (PAAS) | 21.6 | 20 | 19 | August 22 -- $1.05 | $0.05 |
| Urban Outfitters (URBN) | 46.7 | 41 | 42.5 | August 47 -- $1.70 | $0.05 |
| Halozyme (HALO) | 55.2 | 56 | 46.5 | August 55 - $2.45 | $1.00 |
| Guardant Health (GH) | 35.9 | 31 | 28 | August 35 -- $2.90 | $0.05 |
| Sprouts Farmers Market (SFM) | 96.00 | 97 | 80 | September 95 -- $5.20 | $4.50 |
The next Cabot Profit Booster issue will be published on August 27, 2024.
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