When the Bystander Wins (FXI,GWW,FCX,BUD)
A brief word to our friends and fellow citizens caught in the belly of the whale down in Houston – stay brave, dear brothers, and be good to each other. You’re a tough bunch, and you’ll pull through. We’re thinking and praying for you.
And speaking of a hard rain falling, how about Pretty Boy Nukey, North Korea’s dictator du jour, who looks to be begging for a whooping?
Now, even we understand the need to flex some muscle once in a while, and to assert one’s independence, but this looks a little exaggerated. Sending missiles over the Japanese mainland is either a rookie mistake, or an outright request for a confrontation.
In any event, we’ll have more to say on the matter in a moment – including a trade founded on the chubby one’s latest adventures – but first a little business.
Two for the Record Books
We’ve got three trades to address today, two of which brought worthy profits.
We’ll kick off with our July 20th initiative, from a letter called Breaking Bulletin Bids Buyers Beware!, in which we recommended you buy the GWW December 15th 150 PUT for $5.80 and sell the GWW December 15th 170 CALL for $5.70. Total debit on the trade was $0.10.
And it’s all come together splendidly!
Today, the PUT trades at $5.90 and the CALL for $3.90. Sell the former and buy back the latter and you pull in two bucks on a dime laid out. Call it 1850% in six weeks. Annualized, that’s a better than 16,000% return.
Next up is our trade from the following week (7/27). The letter was called Metals. Now., and in it we implored you to sell the FCX September 1st 15 CALL for $0.68 and the FCX November 17th 13 PUT for $0.47, and use the proceeds to buy the FCX January 19th 16 CALL for $1.19. Total debit on the trade was $0.04.
The way it currently stands, we’ve decided it’s best to close down the September 1st CALL. It’s only got a day left before expiry, but we prefer not to take any chances.
As of this writing, it sells for $0.06. Dump it, and leave the remaining options to play.
For those who want to risk holding the 15 CALL, fine. Just beware the potential results of a dance with Reynard, the ball-eyed, trans Plutonian.
And that brings us to our final trade for the day, the beer swiller’s thriller, opened on August 11th in a posting called NORMANDY’S North Korean Missile Defense Issue. Our advice in that letter was to sell three (3) BUD August 25th 113 PUTs for $0.45 each and buy the BUD December 15th 135 CALL for $1.30. Total credit on the trade was $0.05.
The short PUTs expired worthless last Friday and the 135 CALL now fetches $0.65.
Our feeling is to drop the lot of them, take the money, and get outta Dodge. Yes, the option has another 100 days before expiry, but 135 is still a distance away (BUD is now trading at $117.76) and the $0.65 on offer is all time value.
Anything could happen.
Better not to let it.
All in, if you follow our lead to shut her down, your profit is a neat 367%.
A Man in Love With The Green…
We turn our attention back to the Far East now and the latest developments in the Korea story, which – we’re unabashedly inclined to proclaim – is still a major story. It may get pushed off the front burner after a top White House staffer makes a pronouncement or talks down the inevitability of war, but to our understanding, we’re a far cry from concluding this increasingly boggy mess.
- Two days ago, North Korea launched a ballistic missile over Hokkaido, Japan’s northern most island, allegedly from a submarine,
- Japan ordered residents immediately to seek shelter underground or in ‘solid buildings’, and termed the escalation ‘an unprecedented, grave threat’,
- The U.S. Air Force tested ‘steerable’ B61-12 gravity bombs in order to measure the weapon’s “non-nuclear functions and the aircraft’s capability to deliver the weapon”,
- President Trump responded in a broadly hinted tweet that North Korea “…has signaled contempt for its neighbors, for all members of the United Nations, and for minimum standards of acceptable international behavior”,
- Recent polling reveals Americans generally in favor of military action against North Korea, if they (N.K.) initiate hostilities,
- And both Russia and China now claim publicly that sanctions against the rogue nation have been exhausted.
As a whole, it doesn’t appear either side can back down without losing face internationally. Nor is it possible, according to experts, for a first strike by either side to bring about a solution that doesn’t entail a massive body count.
All told, the thing is grim.
But for investors, there could be an interesting way of playing it.
Both Russia and China stand to gain from a weakened U.S. or North Korea. Neither has a particular fondness for the communists of Korea, and would be happy to be rid of the problem of a wacky nation with nuclear weapons on their borders.
The Russian stock market added better than fifteen percent while tensions mounted over the summer, and the Shanghai market rose a shade more.
Our feeling is that any lead-up to hostilities would bring regional, safe-haven money into Chinese shares, certainly over the short term.
But over the long term, Chinese shares, as represented by the iShares China Large Cap ETF (NYSE:FXI), look especially enticing.
Have a look at a weekly chart for the last three years –
The weekly chart shows price breaking convincingly above the $39 line for the first time in two years. With all the salient moving averages now trending higher, $39 now marks strong support, and with that in mind, we’re taking the following action.- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,