Good tidings to all our readers and friends, and especially to our latest batch of new subscribers at the Shao-Lin monastery in Henan province, China. May the Hunter always assist you in snagging your prey!
Down to business!
We’ve got three trades to examine and/or close today, so tighten your belts, sharpen your pencils and place all combustibles out of the reach of children.
Indeed, downright explosive results we have to report from our September 30th initiative. It was a letter called How to Profit as America Goes to Hell, and in it we offered a delectable trade on the restaurant business.
After offering you demographic proof that the high-end fast-food eatery business was about to soar, the inevitable happened. It lip-smacking soared!
We wrote –
“And we ask the question – who is going to profit from an increasingly single demographic that’s both sad and overweight and likely has some spending cash because it has no dependants and/or lives with ma and pa? Fast food restaurants. But not any old fast food restaurants. Upscale fast food restaurants… [and] our analysis of the best of the upper-end, publicly-listed fast food outlets has led us to California based BJ’s Restaurants, Inc. (NASDAQ:BJRI).”
We showed you the technicals and warned you that stock in this west coast pizza slinger could go higher in a hurry.
Now feast your beadies on just how much higher –
This is the last six-months trade for BJRI, but you needn’t look any further than last Friday’s lunar trajectorgasm to see why we’re calling it a day on this trade.
The stock soared 27% after beating analysts’ estimates of $0.13 per share for the quarter. Real earnings came in at a whopping $0.23 and the stock took off. Yet RSI and MACD are both far from overbought, so the gains could carry on for a few days more – or even weeks.
All the same, we’re choosing to play it safe. We recommended purchase of the April 45 CALLs for $1.75 and they last went through at $3.00. That’s a gain of 71% and we’re taking it. Anything could happen, and we have to assume it will.
Story’s over. Good guys won. Time for bed.
As for the open short PUT position, we have little reason to believe there’s anything to worry about. The April 30 strike sits a full $12.42 below last night’s close at $42.42 – meaning the stock would have to lay down and die (forfeit 30%) before the PUTs were in-the-money.
And after the latest quarter’s showing, that’s very unlikely.
Leave ‘em be.
NEXT: In our October 7th letter, called Biding Time ‘til the Pause is Over, we argued that the stock market was in the middle of a swoon, but that it was temporary, and the best option for investors was to find a stock that held up better than the rest and look for it to explode even higher once the funk lifted.
We chose Chinese internet search engine Baidu (NASDAQ:BIDU) as our keystone for the trade, and we have two new developments to report as we progress toward the stock’s inevitable breakout.
Remember, we wrote that –
“After rising too far too fast, BIDU has been moving in a range… But with [its] overbought condition now worked off, we foresee a move above the upper end of the range at $231.”
It took two more weeks, but another significant technical hurdle was subsequently overcome when BIDU closed the gap that was opened back in July when the company reported a blockbuster earnings beat.
Look here –
The gap (in red) was closed two weeks ago (in black) and BIDU resumed trading in its $210-230 range, the same channel it’s been stuck in since it first popped higher at the end of July.
But now we also see RSI and MACD indications offering renewed bullish signals, the former having surfaced above its midway waterline on the 17th of the month and the latter currently one trading session from doing the same. All of which leads us to believe that BIDU will shortly breach the top end of its earnings channel and soar much higher.
The numbers, Huey! Lay ‘em on us.
The second development on the trade is our current profit.
We are not recommending you close the trade today, though you would certainly make a tidy sum if you did. Remember, we bought the BIDU January 230 CALL for $11.15 (it now trades for $10.45), sold the BIDU December 250 CALL for $3.95 (it now goes for $3.25), and also sold the October 31st 200 PUT for $3.15 (it now fetches $0.90 – and is likely on its way to nil).
Your total debit for the trade was $4.05, but if you were to close today you could extricate a full $6.30, a profit of over 55% in just three weeks.
Again, however, we say wait until this weekend’s options expiry, at least, at which point your profit could triple.
Round ‘em up, Huey. It’s all about money.
While BIDU can be left alone for the time being, our tobacco trade of two weeks ago cannot.
The letter was called Light it up with a Match, and there we paired cigarette giants Altria (NYSE:MO) and Philip Morris International (NYSE:PM) in what was essentially a bet on near-term dollar weakness.
The premise was that domestic marketers will do better than those that focus on overseas sales when the dollar is strong, and worse when the dollar is weak.
Anticipating upcoming dollar weakness, we matched the two smoke makers, buying CALLS on PM and selling them on MO.
And today we’re closing.
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The initial trade cost us $0.13 to initiate, and now the PM January 87.50 CALLs go for $2.18 and the MO January 47 CALLs for $1.63. That’s a gain of $0.55 on $0.13 expended or 323% in a single week.
Options Trader Elite recommends you consider a) selling your long BJRI CALLs, as detailed above, and b) closing your PM/MO pairs trade for a tremendous profit.
With love of the hunt,
Hugh L. O’Haynew, Senior Analyst, Normandy Research