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Profit Booster
Make Money 3 Ways from Great Growth Stocks

February 22, 2023

What started out looking like another positive week for the market later turned into a week of little gains or losses, as economic data and Fed speak weighed on stocks on Thursday and Friday. For the week the S&P 500 and Dow fell marginally, while the Nasdaq rose just over 0.5%.

Market Overview
Last Friday was the expiration of five of our covered call positions. Here is a breakdown of those trades:

LVS closed for a profit of $205 per covered call, or a yield of 4.46%.
WPM closed for a gain of $100 per covered call, or a yield of 2.75%.

Both LVS and WPM were nearly zero-stress winners.

Both AAL and ONON are marginally below our breakeven on these two trades. Because of that, and the elevated price of calls, I am going to continue to sell options against our stock holdings in these stocks. Here are those trades:

Sell to Open the AAL March 16 Calls (exp. 3/17) for $0.55 (approximately)

Sell to Open the ONON March 22.5 Calls (exp. 3/17) for $0.60 (approximately)

Please note, we will keep our stops at their original levels from when we entered these trades.

Finally, growth stocks are under pressure yet again. For that reason, I am going to Sell our DT stock position today for a small loss.

Moving on …

What started out looking like another positive week for the market later turned into a week of little gains or losses, as economic data and Fed speak weighed on stocks on Thursday and Friday. For the week the S&P 500 and Dow fell marginally, while the Nasdaq rose just over 0.5%.

The selling late last week continued on Tuesday, as the S&P 500 fell by 2%. Because of this weakness, today we are going to sell an in-the-money call to lower our risk in the covered call trade in a recent earnings winner.

The Stock – Uber (UBER)

Why the Strength
Uber has always had emerging blue chip written all over it, especially as its delivery business has become a huge contributor (about the same number of bookings in Q4 between Rides and Delivery), but (a) when the firm came public with a lot of fanfare the valuation was ridiculous, and (b) Uber was still bleeding a tremendous amount of red ink as the top brass focused on expansion.

But management got the message (from investors and the bear market), and now the pieces are all aligned on the upside: Both Rides (which just surpassed pre-pandemic metrics in Q4) and Delivery are on solid growth tracks, bolstered by resilient economies and travel sectors around the globe; in Q4, currency-neutral bookings were up a strong 37% for Rides and 14% in Delivery, with management adding the pandemic’s push-pull effects on Delivery is basically over now (i.e., no more boom-bust but steady growth ahead). Overall, bookings rose 26%, and the top brass sees Q1 bringing another round of 20%-plus growth.

But the big difference here is that all those bookings and trips are hitting the bottom line: EBITDA has risen from $86 million in Q4 2021 to $168, $364, $516 and then $664 million in Q4 of last year, with free cash flow north of 21 cents per share in Q4 alone—and all those figures should continue to improve going forward, with a target of $5 billion of EBITDA in 2024. Sure, the days of go-go growth are over, but big investors should be thrilled with 15% to 25%-type bookings growth while cash flow goes to the moon.

Technical Analysis
UBER fell by more than two-thirds during the bear market, but the progress on the cash flow front helped the stock explode higher on earnings in August. Shares didn’t get going from there because of the market, but built a multi-month bottoming base—and like many names, UBER has come alive since year-end, actually tagging 10-month highs. It’s up eight weeks in a row, though it has hacked around a bit since earnings. Stop – 28.5

UBER DAILY CHART

The Covered Call Trade
Buy Uber (UBER) Stock at 35, Sell to Open March 34 Strike Calls (exp. 3/17/2023) for $2, or a Net Price of 33 or less

Static Return: $100 per covered call (3.03%)

Breakeven: 33

Covered Call Return (if assigned): $100 per covered call (3.03%)

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 33 or less. (In this case 35 minus 2 = 33. Or another example is you could pay 34.80 for the stock and sell the call for 1.80, which also equals 33)

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 SymbolPrice BoughtCurrent Stock PriceStopOption - Price of Call SoldCurrent Option Price
American Airlines (AAL)17.1015.7514
Toll Brothers (TOL)56.5058.0048.5March 55 -- $3.90$4.50
ON Holding (ONON)23.1021.0019
Dynatrace (DT)45.8543.0039
Allegro MicroSystems (ALGM)44.0043.0034.5March 45 -- $1.50$1.00

The next Cabot Profit Booster issue will be published on February 28, 2023.

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.