Coming off three straight weeks of losses, the bulls staged a rebound last week as the S&P 500 gained 3.65%, the Dow rose 2.66% and the Nasdaq rebounded by 4.1%. Though of note, the market is down across the board this morning following a “hot” inflation report. The expiration of our September covered calls is this Friday. Expect to hear from me Thursday afternoon or Friday morning on how we will manage these positions.
Cabot Profit Booster Issue: September 13, 2022
Coming off three straight weeks of losses, the bulls staged a rebound last week as the S&P 500 gained 3.65%, the Dow rose 2.66% and the Nasdaq rebounded by 4.1%.
The expiration of our September covered calls is this Friday. Expect to hear from me Thursday afternoon or Friday morning on how we will manage these positions.
The Stock – Academy Sports & Outdoors (ASO)
Why the Strength
Academy Sports is a sporting goods retailer that operates a chain of over 260 retail outlets across 17 U.S. states, mainly in the South, with nearly a third of its stores located in the nation’s fastest-growing metropolitan areas. This is a key part of Academy’s strategy of becoming the nation’s leading provider of sports and outdoor equipment, with eight new store openings scheduled for this year, plus 80 to 100 more planned over the next five years, giving it a solid cookie-cutter growth angle.
Last week, Academy gave investors reasons for optimism with solid Q2 results featuring a 26-cent EPS beat of $2.30 as the company said it “substantially” outperformed its pre-pandemic levels of sales and profits. Revenue of $1.7 billion was 6% lower, but this was partly due to a strong comparison from a year ago as the effect of stimulus waned; however, revenue was 36% higher compared with the 2019 quarter. Comparable sales also declined 6%, though improved sequentially, thanks to a robust back-to-school season. (Academy expects further comp sales improvement during the tailgating, hunting and fall sports season and into the holidays.) Additionally, the company reported eye-opening progress with its e-commerce segment, as sales rose 12% in the quarter—and a whopping 245% (!) compared to 2019.
The big idea here is that, after soaring in the pandemic, earnings are not sloughing off at all (north of $7 per share!), leaving the stock with a bargain valuation (7 times earnings), which is one reason why the top brass is engaged in an aggressive share buyback program–in Q2, the share count was down 11.5% from a year ago.
ASO came public in late 2020, had a big run as business surged, but then topped in November of last year with the market. Now, though, the stock has etched a great-looking, multi-month launching pad, with support in March and again in May, a solid push back to its highs in August and, after a three-week dip, excellent support buying after earnings last week. We’re OK starting a position here or on weakness, and a decisive push over 50 would be very bullish. Stop — 43
The Covered Call Trade
Buy Academy Sports & Outdoors (ASO) Stock at 49, Sell to Open October 50 Strike Calls (exp. 10/21) for $2, or a Net Price of 47 or less
Static Return: $200 per covered call (4.25%)
Covered Call Return (if assigned): $300 per covered call (6.38%)
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 47 or less. (In this case 49 minus 2 = 47. Or another example is you could pay 48.50 for the stock and sell the call for 1.50, which also equals 47)
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 …
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|
|Qualcomm (QCOM)||151.70||130.00||132||September 140 -- $17.55||$0.05|
|Shoals Technologies (SHLS)||22.20||24.50||17.5||September 17.5 -- $5.60||$7.00|
|Oak Street Health (OSH)||29.00||27.00||24.0||September 30 -- $2.10||$0.10|
|Global Foundries (GFS)||63.00||58.00||51.0||September 60 -- $5.70||$0.50|
|Wingstop (WING)||120.00||142.00||103.0||September 115 -- $10.39||$27.00|
|Devon Energy (DVN)||71||71.00||62||October 70 -- $5.55||$5.00|
|Cameco (CCJ)||28.9||30.00||24.5||October 26 -- $4.30||$4.50|
The next Cabot Profit Booster issue will be published on September 20, 2022.
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.