If you’ve ever searched for instructions for tackling do-it-yourself tasks, there’s a good chance you’ve turned to today’s recommendation for ideas.
Cabot Profit Booster 148
Ahead of the election the market has come under heavy pressure, which has for the first time in many months put some of our positions in less than ideal spots (kind of). That being said, because we sold calls on these stock positions, our breakevens/cost basis are much lower. This is what makes selling covered calls a terrific risk-reducing strategy!
How our positions will fare as we approach November expiration in two weeks will largely be dictated by the market’s reaction to the election. It will be interesting!
Please note, last Friday Marvell Technology (MRVL) broke our mental stop. However it did so largely based on an interesting situation ... MRVL made a large acquisition. Expect an adjustment of this position later this morning, with greater detail on my thoughts on how we will manage this situation.
The Stock – Pinterest (PINS)
If you’ve ever searched for instructions for tackling do-it-yourself tasks, there’s a good chance you’ve turned to Pinterest for ideas. The social media site features a series of “pins” on virtual “boards” on an unlimited range of topics that are often accompanied by web links (increasingly to prompt purchases), pictures, animated gifs and instructional videos.
Pinterest saw record levels of user engagement during COVID lockdowns, as users turned to the site for home-based projects to help adjust to the new realities, and the stock is strong today because that momentum has continued, if not accelerated.
In Q3, the firm’s top line lifted 58%, per-share earnings of 13 cents were up from a penny a year ago and revenue per user came in at $1.03 (up a whopping 47% sequentially and 14% from a year ago). Sales growth was driven by a strong increase in global ad spend following the Q2 hiccup, and there was also an eye-popping 37% growth in monthly active users to 442 million. Management guided for revenues to rise 60% in Q4—drastically above consensus expectations of 32%—and cited investments in technology and ad tools, as well as macroeconomic improvement, as reasons for the growth.
Specifically, auto bid for advertising on the site was a big contributor in Q3, particularly for small- and mid-sized businesses (making it easier for advertisers to meet their goals). Meanwhile, the firm’s international business grew 145% and made up 16% of total revenue (up from 10%).
Big picture, Pinterest has a long runway of growth as it becomes a fresh location for advertisers to get buyers’ attention at a different step of the buying process—users come to Pinterest often to find out what they want, as opposed to shopping for something they already have in mind.
Technical Analysis
PINS gapped up on Q2 earnings in August, then went dead for a few weeks just south of its old highs, putting the finishing touches on a yearlong post-IPO consolidation. The breakout came in September, and the stock has acted well since then, including last week’s big-volume gain after Q3 earnings. PINS definitely looks like a fresh leader that should head higher over time. Stop - 45
The Covered Call Trade
Buy Pinterest (PINS) Stock at 59, Sell to Open December 60 Strike Calls (exp. 12/18/2020) for $4.50, or a Net Price of 54.5 or less
Static Return: $450 per covered call (8.25%)
Breakeven: 54.5
Covered Call Return (if assigned): $550 per covered call (10.09%)
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 54.5 or less. (In this case 59 minus 4.50 = 54.5. Or another example is you could pay 58.5 for the stock and sell the call for 4, which also equals 54.5)
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
