5/8 Recap

We had another ho hum session so far today, nothing really notable as the SPY treads water over the 50 day. We don’t really have any big names reporting this week or relevant economic data so not really expecting much here short term. We are seeing some really big downside moves in these names reporting. Today Shopify and Uber were crushed with SHOP down 19% and UBER down 9%. This whole quarter the theme has been to sell pretty much every consumer facing name even on decent prints with the exception of Amazon and Chipotle. It has been really ugly in terms of soft guidance with so many concerns about the consumer across the board. It feels like the high interest rates are finally starting to hit these companies numbers after a long period where people were starting to think it wouldn’t. This story continues to develop but every passing ER brings more questions to the table.

Recent Trades

Let’s talk about TRIP, the best idea from over the weekend. I don’t even remember a trade going worse than this one ever much less this quickly so I have to take responsibility when I’m wrong. They had their earnings call and the buyout everyone was looking for did not materialize so they flushed it hard. down 40%, to sub $16 and within 30 minutes it was back at $18+. The overreaction happened and now things are normalizing but when technical damage like this happens it takes a few sessions to settle down.. This is still going $26-$30/share or more in a takeover if you want my opinion, nothing I said from saturday has changed, these takeovers are riddled with games to flush out investors, this happens in all of them.

As for the trade I suggested, I would not change anything, I suggested a put spread using 22/20 put spreads in September. I actually think you can even buy common today at 16/17 and start selling upside calls vs it.

I even said why I used put spreads and it was to have a max defined loss of $1.65 should the name be under $20 come September. We are a long ways from September still and the trade can still work, but I got alot of emails today about selling puts and the losses today and I never suggested selling puts, I explicitly mentioned put spreads because of the max loss in a worst case scenario.

Every trade has different potential outcomes so there is no 1 size fits all structure. In this case, the downside to me was too big should a buyout not occur hence the suggestion of put spreads. At worst, with the trade I suggested, you lose $1.65/share and take a loss in September below $20 or you go long the stock at $21.65. Your potential gain was 21.2% on a risk of $1.65, that’s a solid bet for 4 months with catalysts and directional option flow. If it’s a name where downside risk doesn’t exist you can sell puts without the protection like say any megacap.

Whatever loss is there today, is a paper loss, nothing is final until the trade is over but I didn’t see anything concerning to change the thesis from saturday. In fact you can see in the table below there call buys galore today, I think its buyable on this move down and you can sell covered calls higher. Overall, I still think it is over 21.65 come September. The same move down happened with FOUR recently where a buyout didn’t materialize as quick as people wanted and they sold it off 35%. Markets move in a manner to cause the most pain to the most investors, this was just another example of that.

Trends

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2 Week

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Today’s Unusual Options Flow

Here is today’s link to the database, as always it will expire at the open tomorrow and I will have the rest of today’s trades added throughout the afternoon, its always best to view the table below in the app it looks much better in there as I have to shrink the font to fit it in here sometimes in one screen grab.