“The Kids Are All Right” (XBI,HYG,DIA,PRI,PFE)


Executive Lounge, Wall Street Elite / Monday, December 18th, 2017

“The Kids Are All Right” (XBI,HYG,DIA,PRI,PFE)

 

It’s the end of the year, friends, time for stock taking, and boy-oh-boy have we got a surprising summing-up on offer.

 

Consider first that 2017 has been a year unlike any other in this generation in terms of natural disasters, politics, intrigue and war, never mind the markets.

 

Globally, we’ve never seen such equity success.  Have a look –

Global equity markets have done the impossible, rising 13 months straight, in an unprecedented, non-stop ballistic climb toward the succubus nebula.

 

The What!?

 

That’s right.  From the media to the Oval Office to the New York Stock Exchange, it’s abundantly clear that we’re living through unprecedented times, and there’s very likely more to come in the year ahead.

 

Consider – nothing has been resolved in North Korea, nothing with Syria and the Middle East.  And financially, in all our thirty years investing experience we’ve yet to see a market levitate in the manner it has over the last several months – without the slightest pause to refresh.

 

Something Has to Give

 

It’s hard to figure which peg, if any, will fail first.  Or if something unseen will suddenly and dramatically appear on the radar, flash, blast and crash the whole deck of cards unceremoniously to the ground.

 

And indeed, perhaps it’s that suspense, the drama of it all, from the independent counsels to the communist dictators to the endless debate over the future of Bitcoin, that has caused an entire generation to straighten up and fly right.

 

An entire generation what…?

 

Have a look –

While you weren’t paying attention, young people across the nation were eschewing those habits that made American culture the world’s most popular.  The chart shows a dramatic reduction in the number of teens who behaved ‘badly’ – smoking, drinking, wearing velour – or at least those who admitted to doing so.

 

Now have a look at some crime figures –

Albeit, the data does come from the U.K., but the stats, in fact, mirror our own – Baltimore and Chicago notwithstanding.  That is, there are fewer and fewer young people turning to crime during their high school years to catch a thrill.

 

And that, too, is a good sign.

 

Now, many will say that the current generation of youth is so Ritalin-ized and Prozacked and beholden to their iPhones to engage in ANYTHING – criminal or otherwise – so the numbers are actually misleading, if not downright meaningless.

 

But we take issue with that analysis.  We’ve had a number of meaningful discussions with today’s younger cohort, and between texts and insulin injections they nearly always answer us in a polite, respectful and thoughtful manner.

There appears to have been a meaningful turn towards truth and honest living in the younger generation that, we have to admit, we did not see coming.

 

Consider the following chart, too, that speaks directly to the level-headedness of today’s post-pubescent cohort.

 

It’s a longitudinal breakdown by generation of who really believes in their elected leaders.

And as you can see, an abiding and growing skepticism of the political echelon has been building for almost two decades, with the steepest drop occurring amongst those we call ‘millenials’, a group that otherwise gets a bum rap.

 

Sum ‘er up, y’old South Buffalo drunkard!

 

Well, to us, it looks like this: first, the kids are all right, gramps.  They may behave like a pack of tetrahedrons from time to time.  And they may have some Osgood Schlatters to endure while they work through some silly ideologies, but they’re headed in the right direction.

 

And because the burden of the cleanup will rest with them after the coming mayhem finally passes, we’re encouraged that we’ll be in good hands at that time.

 

Xmas Cheer

 

In a world that’s increasingly devoid of genuine good tidings, we offer the above as a stoke for good cheer.  Take heart, all ye good souls.  There may be some difficult days and circumstances ahead of us, but the final outcome will almost assuredly be positive.  Stay the course and stick with us.  We’ll all get through it together.

 

And now a quick review of four trades before we get to this week’s initiative.

 

We start with our June 27th initiative (Rolling Her Over Again and Again) that asked you to buy the XBI September 15th 71 PUT for $1.23 and sell two (2) XBI September 15th 67 PUTs for $0.67 each, for a total credit of $0.11, and 2) buy the XBI September 15th 85 CALL for $2.08 and sell the XBI December 90 CALL for $2.27.  Total credit for (both sides of) the trade was $0.30.

 

On September 12th we added another $0.29 to the deal by selling the long September 15th CALL in a letter called What are ya? Some Kinda Martian from Pluto!?

 

As of last Friday, everything else expired worthless, so our take is $0.59 on zero expended.  Adjusted for minimal commissions gives us a profit of 293%.  Congrats if you went in big!

 

Next up was the September 26th trade from a letter called New Leg Afoot.  There, we asked you to buy the HYG January 18th (2019) 83 PUT for $3.50 and sell the DIA January 18th (2019) 180 PUT for $3.85.  Total credit on the trade was $0.35.

 

Today, the HYG PUT goes for $2.96 and the DIA for $2.14.  Sell the former and buy back the latter and you net $1.17 on nothing down.  Adjusted for minimal commissions makes it a 680% gain.

Next up was our letter of four weeks ago, Normandy Exec Charged With Manspreading…, in which we urged you to buy the PRI December 15th 95 PUT for $1.10 and sell the PRI December 15th 100 CALL for $1.35, for a credit of $0.25, and b) buy the PRI June 15th 100 CALL for $7.30 and sell three (3) June 15th 85 PUTs for $2.40 each.  Total debit on part b) is $0.10.  Taken together, we earned a credit of $0.15. 

 

Two weeks later, in All Hail the Dipstick Trade, we sold the PRI June 15th 100 CALL for $9.20.  And it’s a good thing, too, because as of last week’s expiry, we’re short one lot of PRI at $100, with the stock now at $103.15.  Buy it back for a loss of $3.15, and you have a current (unrealized) gain of $6.20 with the three short June 15th 85 PUTs still open.

 

Finally, November 28th’s letter was entitled Angry Billionaire Implodes.  Our recommendation was to sell five (5) PFE June 15th 33 PUTs for $0.81 each and buy two (2) PFE January (2019) 37 CALLs for $1.68.  Total credit on the trade was $0.69.

 

Today, the June 33s are trading for $0.45 and the long January 37s for $2.32.  Buy back the former and sell off the latter and you net $3.98 on bupkus laid out.

 

After commissions, call it a 2553% win.

 

NICE!

 

Where to next!?

 

Today, we’re piggybacking on the Pfizer (NYSE:PFE) trade we just closed by setting up a new initiative with even better terms.

 

As you’ll see from the chart below, Pfizer just broke above resistance and should be moving much higher over the intermediate term.  But the options market doesn’t yet reflect that.

So…

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Wall Street Elite recommends you consider buying the PFE September 2018 37 CALL for $1.95 and selling the PFE September 2018 37 PUT for $2.08 for a total credit of $0.13.

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PFE currently trades at $37.20.

 

With kind regards to all our readers for a happy holiday season!

 

Hugh L. O’Haynew

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