This week got off to a weaker start Monday ahead of important inflation data Wednesday and Thursday, which could set the tone for the market for the weeks to come. Buckle up!
Cabot Profit Booster Issue: July 12, 2022
Market Overview
Traders seemingly warmed up to the potential for a “soft landing” for the economy last week as commodity prices continued to fall, while the June Jobs Report released Friday was strong. This possible best-case scenario sparked a gain of 1.96% for the S&P 500, while the Dow added 0.77% and the Nasdaq rose 4.56% last week.
This week got off to a weaker start Monday ahead of important inflation data Wednesday and Thursday, which could set the tone for the market for the weeks to come. Buckle up!
The Stock – Fortinet (FTNT)
Why the Strength
Cyberattacks are becoming increasingly dangerous as cyber criminals use sophisticated innovations powered by artificial intelligence and automation via AI “fuzzing” and machine learning. To combat this, cybersecurity giant Fortinet is fighting fire with fire by using AI in its cybersecurity solutions to stay ahead of evolving threats.
The company’s FortiAI, for instance, alleviates the tedious manual threat investigation of security alerts and threat response by identifying threats and malware outbreaks in fractions of a second and blocking them. Fortinet’s AI-based offerings have increased its already massive customer base—the firm boasts 80% of Fortune 500 companies among its customers—and it enjoys a leading position (38% share) in the firewall market with FortiGate being the world’s most deployed network firewall. It also has the second-biggest position (20% share) in the software-defined wide area network (SD-WAN) hardware appliance market behind Cisco Systems.
Fortinet’s strength was underscored by a stellar Q1 report which boasted revenue that increased 34% from a year ago along with per-share earnings of 19 cents that beat estimates and were up 19%. Other metrics were equally impressive, including bookings of $1.3 billion that jumped 50%, billings that soared 36% and deferred revenue that rose 33%. Customers are also spending more on the firm’s products, including 90 deals in Q1 that were worth $1 million or more (up 36%).
Also accounting for the recent strength was a 5-for-1 stock split that brought the share price down. Analysts see earnings up nearly 30% this year and north of 20% in 2023, both of which are likely conservative.
Technical Analysis
FTNT was a slow starter coming out of the 2020 pandemic compared to many cybersecurity names, but it finally broke out in early 2021 and had a beautiful, smooth advance until it topped in the 75 area last December. However, the stock has been resilient throughout the bear phase—shares have held support in the low 50s for all but a few days in May and, while it’s not setting the world on fire, FTNT’s RP line set a new high last week. Stop - 53
The Covered Call Trade
Buy Fortinet (FTNT) Stock at 63, Sell to Open August 64 Strike Calls (exp. 8/19) for $3, or a Net Price of 60 or less
Static Return: $300 per covered call (5%)
Breakeven: 60
Covered Call Return (if assigned): $400 per covered call (6.66%)
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 60 or less. (In this case 63 minus 3 = 60. Or another example is you could pay 62.5 for the stock and sell the call for 2.50, which also equals 60)
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
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| EQT Corp. | 42.50 | 34.50 | 31.5 | July 38 -- $1.45 | $0.30 |
| Dollar Tree (DLTR) | 160.25 | 167.00 | 139.0 | July 160 -- $3.30 | $7.00 |
| Academy Sports and Outdoors (ASO) | 33.50 | 37.00 | 28.0 | July 32 -- $3.24 | $5.00 |
| Halozyme (HALO) | 45.90 | 50.00 | 34.0 | July 45 -- $2.29 | $5.00 |
| JD.com (JD) | 65.20 | 60.00 | 54.0 | July 66 -- $2.96 | $0.10 |
| Alliance Resource Partners (ARLP) | 17.60 | 19.50 | 15.3 | August 17.5 -- $1.35 | $3.00 |
The next Cabot Profit Booster issue will be published on July 19, 2022.
Analyst Bio
Jacob Mintz
Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.
Jacob developed his proprietary system during his years as an options market maker on the floor of the Chicago Board of Options Exchange, where he ran several trading crowds for nearly 10 years.
After a successful career on the trading floor Jacob was tasked with setting up a trading desk at a top-tier options trading company, trading against the most sophisticated hedge funds and institutions in the world.
Today Jacob trades for himself, coaches and teaches about options trading, and runs our Cabot Options Trader, Cabot Options Trader Pro and Cabot Profit Booster advisories. Jacob lives in North Carolina with his wife and two kids who keep him very busy with their sports and social calendars.