Taking off the BCS (Barclays) $11 call we have on in the December 2021 cycle for a scratch because of reasons we will discuss in the weekend report. (We have become more bullish)
Trade Fill : Bought back BCS $11 December call 2021 for $0.45 per contract.
Also Companhia Energética de Minas Gerais (CIG) for once has had a down day. Since we have nice profit in his long stock play and because we may have a short-term double top in play here, we will get out. We can always re-enter if we get an attractive entry.
Potential Double Top In CIG Playig Itself Out
Many times, technical analysis gets a bad rap but unfairly so in our view. In fact, when one accepts the pretence that share-price action on the technical chart informs the investor of everything, then investing can become a whole lot easier. We believe that every possible piece of information be it fundamental, psychological has already been digested by the market or the share-price behaviour on the technical chart. This is especially true on long-term charts because we are dealing with far more information.
We aim as much as possible to invest in what is in front of us and not what the fundamentals may necessarily say. This is the Achilles heel with respect to just investing in a company for fundamental reasons in that one may have to wait years for a bullish trend to finally get underway. Studying the technicals however in conjunction with the fundamentals brings clarity to the situation as the technicals inform us when a trend may be changing for example.
Hello Group´s. (MOMO) long-term MACD is very close to giving a long-term buying signal. We have vetted this company and MOMO continues to report strong profitability, has robust cash levels and is trading for pennies on the dollar. Suffice it to say, this MACD crossover has a strong possibility of playing itself out here. Let´s see what happens.
Verdict & Plan Going Forward for MOMO: Remaining long until the monthly technicals get back to oversold levels. The firm´s valuation with an ultra-low book multiple of 1.2 has plenty of runway for gains here before we return to a more normal valuation for this stock
MOMO -Pennies on the dollar
Really cheap Brazilian utility player here with a great dividend and excellent profitability. Again, because of the excellent dividend as well as the lack of any real opportunity in its options markets, we decided to go long stock. Although shares have rocketed out of their 2020 lows, the weekly chart and specifically the low stochastics definitely point to more upside here. CIG is undergoing significant elevated investment in the next few years which should really move the needle for this firm. In fact, the almost 10 billion Brazilian Real of earmarked divestments will obviously affect profitability in the near term but these liquidations should in no way overshadow the 22+ billion Real of core-based investments scheduled to take place over the next 3 to 4 years. Suffice it to say, going forward, it is all about increasing shareholder capital so more returns can be made off that very same capital.
Upmove coming in CIG
Verdict & Plan Going Forward for CIG: We will make a decision on CIG when the weekly stochastics return to oversold conditions. Utility companies are slow burners in that one does not see the same types of capital gains compared to other sectors in the long run.
There have been plenty of things happening in Frequency Therapeutics, Inc. (FREQ) of late. Recently, the share-price responded nicely to studies done in FX-322 (Hearing Loss). As we can see from the sky-high volatility in this stock at present, the market is pricing in a major move. We intend to take advantage of this fear by selling buckets of premium. Something like the sale of a strangle or an iron condor looks to be the strategy in here at present. With these levels of volatility, one should be able to put their short-strikes 20 to 40% away from the current share-price.
High Implied Volatility In FREQ
Enzo Biochem is definitely taking advantage of the pandemic. Sales for its testing equipment, etc soared in its second quarter to come in at almost $32 million. This was a huge gain over the same quarter of 12 month prior. The market consequently rewarded the stock once the numbers were released.
Being a low priced stock, Enzo at approximately $4 a share brings opportunity to the table. The reason being is that despite the strong rally today, shares are still trading at a lower valuation that the stock´s 5-year averages. Furthermore, being an optionable stock, implied volatility has spiked to approximately 240% in the back month. This means we have the possibility to reduce basis if that is indeed our favoured startegy.
If indeed, we have a breakaway gap here in play, price has no business dropping below the underside of the gap. The $3.60 level for example should not be breached if this is the start of a new bull run in this stock. Covered calls or naked puts look attractive in ENZ at present due to one´s ability to defend if needs be.
Volume spike in Enzo Biochem
Posted in Enzo Biochem
Although this market definitely favors bullish strategies, there will come a time when more neutral strategies will be par for the course. Strategies such as a ratio spread where we sell two out of the money puts and we buy an at the money put or a closer out of the money put. This startegy works great in normal volatility environments and offers tons of availability as one can make money if the price of the stock goes up or goes down.
A variation of this startegy (for those who do not want to roll those puts if needs be) would be a covered call along with the purchase of an out of the money put. Take Sigma Labs, Inc. (SGLB) fore example currently trading around the $7.50 mark. Shares spiked higher today and implied volatility in the near-month cycle (March) exploded above 600% at one time. Even in the back month (April) where 300%+ levels were available, one could have bought 100 shares at close to the $7.50 level, sold the at the money call ($7.50) for $2.80 per contract while simultaneously sell the $5 put for roughly $1. This setup is very close to being delta neutral and it offers significant risk-protection to the downside. Furthermore the net credit comes in at $1.80 per contract on the options which is attractive for a low-priced stock.
Sigma Labs Spikes(SGLB)
Posted in Sigma Labs
Warren Buffet stated that the two most important rules of investing are
- Not to lose money &
- Never to forget rule No 1.
We believe that it is essential to adopt the same mindset in our trading exploits. One must hate losing in this game. Paul Tudor Jones (one of the best short-term traders in the world) has stated that his focus is predominantely on never letting the “market” get into his pockets.
So how do we set up a “no lose”mentality for our short-term trading exploits? Our short-term strategy at present in this market is to trade low-prices socks which are trading with high levels of implied volatility. We then either sell puts or covered calls in these underlyings. Ratio spreads are also an excellent option if one wants to use more capital (hence, less time) in each position but that strategy is for another post. The next obvious quetion is why do we cap our potential gains with these types of strategies. For two reasons.
- Selling covered calls or naked puts enables us reduce our risk
- Secondly and probably more importantly, it gives us the opportunity to defend if the respective position were to go against us
Take Auris Medical Holding Ltd. (EARS) for example. As we can see in the chart below, shares have once more spiked to the upside on strong volume in March. This volume spike has spiked implied volatility to much higher levels than we usually see in this stock. This means “Fear” is elevated in this company at present which means a big move is expected shortly. However, given the price of the company ($4.40) and the liquidity of the options as well as the high level of implied volatility, we believe we are in a very good position here to defend if needs be. If the volume trend is correct though, we should have have to defend here as the chart has a bullish bias. Next week will tell us a lot about the future directions of this stock.
Volatility in EARS spikes
Tellurian (TELL) has broken out of a multi-month trading range. This company´s aim is to build a huge LNG export facility in Louisiana to ship the commodity to the world. As an investment, the firm has major funding risks. This is a sizable project which is expected to generate significant cash/flow if indeed the project can get completed. Furthermore shareholders will also be hoping that it does not come in way over budget.
We understand why value investors may not be attracted to this company because of its lack of any real earnings plus the fact that significant capital will need to be raised to pay for the project. This obviously raises risk a lot especially if the price of natural gas for example were to drop sharply in the coming quarters ( We remain bullish though on Nat.Gas).
However, from a market´s standpoint at present, the fundamentals are bullish. How do we know this? Because the price is going up. As technicians, that is really all we have to know. If prices are rising, the fundamentals are bullish, if it is the opposite, they are bearish.
The beauty of sharp moves in price is that this causes implied volatility to spike which in turn increases the prices of the stock´s options. We expect the breakout to hold which means price has now no business dropping under $1.80 per share approx once more.
Breakout in TELL
Posted in Tellurian