In what came as a shock to many, some brick-and-mortar retailers actually did quite well during the shutdown. This retailer emerged as one of the winners in the locked down economy, keeping all its stores open during the pandemic and reporting strong online business (+45%) and higher comparable store sales in April.
Cabot Profit Booster 129
The month of June was very kind to the Cabot Profit Booster Portfolio as we locked in the following profits, and one loss:
CHGG profit of $600 per covered call, yield of 10.16%
LSCC profit of $200 per covered call, yield of 9.75%
SNAP profit of $225 per covered call, yield of 14.28%
CRWD profit of $995 per covered call, yield of 16.5%
CHWY profit of $655 per covered call, yield of 16.6%
ETSY profit of $900 per covered call, yield of 17.64%
NUAN loss of $25 per covered call, loss of 1.19%
And while the last several months have been spectacular for the CPB portfolio, aided by a strong market rebound and terrific stock picks by Cabot Top Ten Trader chief analyst Mike Cintolo, at some point the market will cool off. However, until then we will keep pushing forward …
The Stock – Big Lots (BIG)
In what came as a shock to many, some brick-and-mortar retailers actually did quite well during the shutdown. Big Lots emerged as one of the winners in the locked down economy, keeping all its stores open during the pandemic and reporting strong online business (+45%) and higher comparable store sales in April.
Last week, Big Lots provided an optimistic update after completing a previously announced sale and leaseback transaction worth $550 million (the proceeds of which are expected to improve its liquidity and boost shareholder value). The closeout consumer goods retailer said comparable-store sales were “up strongly” in the current quarter and have exceeded the firm’s expectations through mid-June; it also saw its biggest e-commerce volume ever in Q1.
Management attributed recent growth to increased demand for home furnishings during the shut-in, though it warned that sales will likely slow this summer.
Analysts anticipate more good things in their furniture and online businesses (the firm recently partnered with Instacart to provide same-day delivery from nearly 1,400 stores in 47 states), with revenues expected to rise 13% in Q2. While Big Lots hasn’t transformed into a growth company, analysts see earnings taking a step-function leap higher this year and holding most of those gains going forward. Helping the cause is the fact that Big Lots is set to resume a $348 million stock buyback program in the coming months, and it recently announced a cash dividend of 30 cents per share (payable on June 26). As an off-price retailer in a rebounding economy, we think Big Lots can do well.
BIG had been the dog’s dinner for years, but the action after the market’s low has been stunning, with shares ripping higher eight of nine weeks and tagging multi-year highs in late May. The stock has finally begun to pull in, which is normal, and so far the selling has been orderly, allowing the 50-day line (now nearing 29) to begin to catch up. If you don’t own any, we’re OK taking a swing at BIG around here. Stop - 27.5
The Covered Call Trade
Buy Big Lots (BIG) Stock at 34.50, Sell to Open July 35 Calls (exp. 7/17/2020) for $1.50, or a Net Price of $33 or less
Static Return: $150 per covered call (4.54%)
Covered Call Return (if assigned): $200 per covered call (6.06%)
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 34.5 minus 1.50 = 33. Or another example is you could pay 33.75 for the stock and sell the call for $0.75, 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 …
Your guide to successful options trading,