Dids/Pexels
This Week’s Trade Exits
As soon as I exit a trade, I note that in the comments of the post where I first mentioned the trade; at the end of the week, I try to track them all in one post. These are the trades I exited this week.
Stocks or Exchange Traded Products
None.
Options trades
Call spread on Lululemon Athletica (LULU 0.00%↑). Entered at a net debit of $3 on 3/22/2024; expired worthless on 6/21/2024. Loss: 100%.
Call spread on Snowflake (SNOW -0.41%↓). Entered at a net debit of $2; expired worthless on 6/21/2024. Loss: 100%.
Puts on Spirit Airlines (SAVE 0.00%↑). Bought for $0.48 on 1/17/2024; expired worthless on 6/21/2024. Loss: 100%.
Call spread on Microstrategy (MSTR 0.00%↑). Entered at a net credit of $5 on 3/14/2024; expired worthless on 6/21/2024. Profit: 100%.
Comments
Stocks or Exchange Traded Products
No exits this week, but our core strategy continues to perform well, driven by the returns of our top names.
So far, we have 6-month returns for 52 weekly top names cohorts since we started this Substack at the end of December, 2022.
And as you can see above, our top names have averaged returns of 23.46% over the next six months, versus SPY’s average of 12.82%. You can see an interactive version of the table above here, where you can click on each date and see a chart showing each of the holdings that week.
Options
I wrote about the LULU 0.00%↑ and SNOW 0.00%↑ trades in a post earlier this week:
Everyone likes a bargain, so it’s tempting to bet on a once high-flying stock when it drops post-earnings. We did that with two stocks in the first quarter, Snowflake (SNOW -0.86%↓) and Lululemon Athletica (LULU 2.16%↑). Both posted double beats (on earnings and revenues), and both tanked after earnings: LULU by 16%, and SNOW by about 18%. We placed bullish options bets on both of them set to expire after their earnings this quarter.
Both of those options trades are going to expire worthless this Friday, even though one of those stocks (LULU) posted another double beat this month. Why?
In hindsight, we made two mistakes there:
We placed our post-earnings trades immediately, without waiting for prices to consolidate. Though the stocks were down double-digits post earnings, they kept sliding. LULU is now down 36% from the day it posted its earnings in the 1st quarter, and SNOW is down about 46%.
We didn’t pay enough attention to valuation. Even after those steep drops, LULU today has an overall valuation rating of 3 (on a scale of 0 to 10) according to Chartmill, and SNOW has an overall valuation rating of 0 (Chartmill’s overall valuation rating takes into account price/earnings, forward P/E, and other valuation metrics).
The SAVE 0.00%↑ puts were a bet on the company going bankrupt, and it didn’t. In our most recent bearish bet (on a regional bank), we don’t need it to go bankrupt, just for the stock to drop by a couple of dollars before expiration.