Note: Due to the Labor Day market holiday next Monday, you will receive your next Cabot Profit Booster issue on Wednesday, September 4.
Before we dive into this week’s covered call idea, we need to address our four August positions that expired a week ago.
HALO expired for its full profit, leaving us without a stock or option position.
PAAS, URBN, and GH stocks all closed below their short strike price, which means the calls we sold expired worthless, and we will sell these stock positions today.
To execute these trades you need to:
Sell PAAS Stock
Sell URBN Stock
Sell GH Stock.
Moving on …
The many stock market worries of just three weeks ago appear to be a thing of the past as the S&P 500, Dow and Nasdaq all gained just over 1% last week, and all are now within striking distance of all-time highs.
The Stock – Sweetgreen (SG)
Sweetgreen is strong today because it’s one of a few growth-oriented cookie-cutter restaurant stories out there that’s likely in the early innings of a long growth wave—but also because it has a technology angle that could see it pioneering a new kind of restaurant in the years ahead.
At its heart, Sweetgreen is best known for its various salads and warm bowls with fresh, tasty ingredients, thanks in part to an emphasis on having deals with local growers. Importantly, the firm doesn’t want to be known just as a salad shop; lunch sales (including in big cities as workers head out for a bite) remain the key, but it recently branched out into protein-focused plates (salmon, steak, etc.) that have expanded their business (dinner is now 40% of sales, up from 37% a year ago), and it plans more innovation there going ahead.
In Q2, business continued to crank ahead—sales rose 21% (the 13th straight quarter of 20%-plus sales growth), same-store sales lifted 9% (4% from traffic, 5% from price/menu mix) and the firm opened four new locations (new openings have seen sales equal to or greater than the company average); it’s likely to boost the store count by 15% to 20% annually, aiming for the lower end next year and the higher end beyond that.
All that is to the good, but there’s also a lot of excitement about the firm’s Infinite Kitchen concept (which it got from Spyce, a firm it acquired a few years back), where there are some employees (namely a host to guide customers, as well as a worker at the end to add small stuff like herbs) but machines do the heavy lifting, allowing customers to order (via kiosk or ahead of time via the app) and machines to dispense the dishes.
It’s still early with just a few out there, but 2024 will see the firm opening seven new ones this year and retrofitting two or three others; early returns show much higher margins (no surprise), something like 30% restaurant-level margins vs. 20% for the firm as a whole. To be fair, growth for the company as a whole is expected to slow some in the quarters ahead, but the long-term growth plan is solid and the Infinite Kitchen possibilities are big.
Technical Analysis
SG isn’t for the faint of heart, as shares can make some big moves—but there’s no doubt the trend is up and the stock is trying to break out again. The original blastoff came March 1 after earnings, leading to a huge run to 26 in April, though that was followed by a 29% downdraft during the market’s spring retreat. Another earnings gap in May brought new highs, but there was no progress after that, with a 38% (!) decline into July. And now we see another bullish earnings gap for SG, with repeated big-volume buying as shares nose to new highs.
Stop — 28.5
The Covered Call Trade
Buy Sweetgreen (SG) Stock at 34, Sell to Open September 34 Strike Calls (exp. 9/20) for $2, or a Net Price of 32 or less
Static Return: $200 per covered call (6.25%)
Breakeven: 32
Covered Call Return (if assigned): $200 per covered call (6.25%)
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 32 or less. (In this case 34 minus 2 = 32. Or another example is you could pay 33.65 for the stock and sell the call for 1.65, which also equals 32)
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 |
| Sprouts Farmers Market (SFM) | 96 | 100 | 80 | September 95 -- $5.20 | $7.00 |
| Coupang (CPNG) | 22.6 | 22.85 | 20 | September 23 -- $0.80 | $0.70 |
The next Cabot Profit Booster issue will be published on September 4, 2024.
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