Before we dive into this week’s idea, let’s clean up a couple of positions that expired last week. Because of the general market weakness, today we are going to sell our stock positions in Qualcomm (QCOM), Oak Street Health (OSH), and Global Foundries (GFS). Once these sales are made, we will no longer own a stock or option position in these stocks.

Cabot Profit Booster Issue: September 20, 2022

Market Overview
Before we dive into this week’s idea, let’s clean up a couple of positions that expired last week.

Because of the general market weakness, today we are going to sell our stock positions in Qualcomm (QCOM), Oak Street Health (OSH), and Global Foundries (GFS). Once these sales are made, we will no longer own a stock or option position in these stocks.

Moving on …

Sparked by a “hotter”-than-expected inflation report last Tuesday, the market had its worst week since June. The numbers were not pretty as the S&P 500 fell 5.15%, the Dow lost 4.13%, and the Nasdaq declined by another 5.5%.

This week traders will finally get some resolution to the long-awaited 75 or 100 bps interest rate hike on Wednesday. Buckle up … again!

The Stock – Las Vegas Sands (LVS)
Why the Strength
Las Vegas Sands (LVS) applied for a new, 10-year license to operate in Macau, the Chinese island where it opened the first western-style casino in 2004. Almost assuredly it’ll be approved: The company works closely with the local government to develop Macau as a tourist destination (it’s a ferry ride away from Hong Kong) and is investing heavily as well in its local job training academy.

Despite its name, Las Vegas Sands is now a pure play on Asian gambling—the company sold off its Sin City properties earlier this year to Apollo Group for $6.25 billion (though the corporate headquarters remain in Nevada). Macau at full strength is a massive gambling center that was six times the size of Las Vegas’ in terms of gambling revenue before the pandemic. Sands has the largest footprint of any casino operator on the island where its European-themed resorts – the Londoner, Parisian and Venetian, plus Vegas-style Plaza and Sands– are themselves attractions beyond access to gambling. Long term, that’s good, but right now, China’s zero-COVID policy continues to crimp action; August total gaming revenue for the island was just 9% of pre-pandemic levels, at $271 million.

Sale of the Las Vegas properties provided enough cash for the debt-laden ($15.4 billion) business to weather the intermittent pandemic problems in China until cash flow returns again. In Singapore, where Sands has one of the island’s two casinos, it’s a similar story, with airport arrivals still about half of pre-COVID levels. Recovery region-wide is expected next year, when analysts expected $1 a share net income, big cash flow and revenue of $7.7 billion. We think it’s a big potential turnaround play.

Technical Analysis
LVS peaked just before the pandemic at 74, and it’s no surprise that shares have suffered since COVID-19 spread. However, while the stock isn’t clearly uptrending, it’s also showing real signs of bottoming—the low was back in May, and after a few weeks of resilience, LVS popped on earnings in July. And now it’s tightened up for two months right near the 40-week line with no real signs of distribution. We’re OK nabbing a position here, and if the market can shape up and LVS can surge into the low 40s, possibly adding more. Stop — 33.5

The Covered Call Trade
Buy Las Vegas Sands (LVS) Stock at 40, Sell to Open October 40 Strike Calls (exp. 10/21) for $2, or a Net Price of 38 or less

Static Return: $200 per covered call (5.26%)

Breakeven: 38

Covered Call Return (if assigned): $200 per covered call (5.26%)

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 38 or less. (In this case 40 minus 2 = 38. Or another example is you could pay 39.5 for the stock and sell the call for 1.50, which also equals 38)

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.

The next Cabot Profit Booster issue will be published on September 27, 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.