In an effort to keep the Profit Booster portfolio as diversified as possible, today we are adding an emerging broker play that is coming off a strong quarter, and just last night announced a large buyback.
The Stock – Robinhood (HOOD)
If this bull market carries on in the months ahead (which the odds favor happening), it’s a sure bet that many Bull Market stocks (firms whose business is primarily tied to asset values and trading activity) will see business boom.
Robinhood looks like the glamour play in the sector, as it’s leveraged to activity in many volatile areas (including crypto and sometimes meme stocks), but the firm has grown up a lot in recent years, too, offering far more in the way of products and services to traders (including index options and futures, though to be fair, there are still limitations, including a lack of mutual funds and things like preferred or closed-end stocks), as well as many interesting company initiatives. Its Robinhood Gold membership ($50 to $75 per year; currently 1.68 million members, up 42% from a year ago) gives users higher cash rates (5% yield), a 3% match on any IRA deposits if you stick around for a while (compared to 1% without Gold), a 1% deposit match (coming soon) and better trading tools and margin rates. (There’s even an upcoming credit card that promises an industry-best 3% cash back on all purchases if you have Gold.)
And that’s led to a steady increase in customers and assets, with growth picking up now that the market is strong: In Q1, net deposits totaled $11.2 billion (25% of that came from transfers from other brokerages), more than doubling any other quarter of the past two years, while assets under custody lifted to $130 billion, up a huge 65% from a year ago. (Newer cohorts of customers are depositing larger amounts initially and growing faster over time.)
Like many brokerages, a big part of the story is interest income (just over half of Q1 revenue, up 22% from last year), though transaction-based revenues are also surging (up 59%), led by crypto and options-related trading. The market’s correction in April saw trading volumes dip, but net deposits in the month were larger than Q4 2023 and options trading volume actually increased.
All in all, if the bulls generally remain in charge, we think Robinhood can get a lot bigger as it takes share in the massive brokerage market.
Technical Analysis
HOOD broke out nicely after Q4 earnings in mid-February, beginning a beautiful gallop up to round-number resistance in the 20 area near the end of March when the market took a spill. The correction from there was normal, but then things got a little crazy, with shares spiking and then falling after Q1 numbers came out—shaking us out in the process. However, HOOD’s rebound from there was outstanding, with “over-the-top” volume (even higher than the prior shakeout week), and shares are now testing their highs. Stop — 16.8
The Covered Call Trade
Buy Robinhood (HOOD) Stock at 20.5, Sell to Open June 20.5 Strike Calls (exp. 6/21) for $1.15, or a Net Price of 19.35 or less
Static Return: $115 per covered call (5.94%)
Breakeven: 19.35
Covered Call Return (if assigned): $115 per covered call (5.94%)
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 19.35 or less. (In this case, 20.5 minus 1.15 = 19.35. Or, another example is you could pay 20.60 for the stock and sell the call for 1.25, which also equals 19.35.)
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) | 18.75 | 22 | 15.8 | June 19 -- $1.10 | $3.50 |
| Pinterest (PINS) | 41.5 | 41 | 35 | July 41 -- $2.75 | $1.85 |
| Oscar Health (OSCR) | 22.5 | 20 | 17 | July 22.5 -- $2.30 | $1 |
| Dutch Bros (BROS) | 36.35 | 35 | 31 | July 37.5 -- $1.65 | $1 |
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The next Cabot Profit Booster issue will be published on June 4, 2024.
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