We Had The Right Ideas

But none of these three trades will fill today.

Note: I wrote this post before the market opened today. None of these trades are going to fill today, as the two stocks I was bearish are down double digits on the day, and the one I was bullish on is now up double digits, but I’m sending this post out anyway so you can see my thought process here.

More Meme Magic

As we noted yesterday, the return of “Roaring Kitty” has led to insanity in few former meme stocks this week.

“Roaring Kitty”, as the meme stock investor Keith Gill calls himself, returned to X after an absence of three years yesterday, and posted a few memes, with no specific stock commentary. On the basis of that alone, a couple of former meme stocks spiked in price yesterday and today, at times by more than 100%.

We’re going to try betting against one of those meme stocks today, which has terrible fundamentals. On Chartmill’s scale of 0-to-10, where 0 is the worst, this stock has an overall fundamental rating of 1, a valuation rating of 1, and a health rating of 0. Our bet is that the stock will come back to earth over the next few months.

I put that trade below the paywall yesterday, but today’s post is free (I attended a Substack event in New York last week where they suggested doing a free, actionable trade post about once per month, so this will be that one for May).

Betting Against Meme Stocks

You don’t want to short these names, as there’s uncapped upside risk, and buying puts on them tends to be extremely expensive. So what we’re trying instead is opening credit call spreads on them.

Bearish Trade #1

The first one is AMC Entertainment Holdings (AMC 0.00%↑). That was the subject of yesterday’s trade alert, but we didn’t get a fill on that trade. We mentioned the fundamentals on this one above; they’re dogshit (though, thanks to this week’s run-up, the company was able to sell more equity to shore up its balance sheet, albeit while further diluting its shareholders). This time, we’re going to try a vertical spread expiring on September 20th, buying the $7 strike calls and selling the $6 strike calls for a net credit of $0.60. The max gain on 10 contracts is $600, the max loss is $400, and the break even is with AMC at $6.60. This trade hasn’t filled yet.

Bearish Trade #2

The second one is GameStop (GME 0.00%↑). The fundamentals on this one aren’t quite as bad as AMC—it has an overall fundamental rating of 3 on Chartmill’s scale of 0-to-10, as opposed to AMC’s rating of 1—but it was trading at a P/E of 975 as of Tuesday’s close, and its forward P/E was over 4,000. We’re betting on this one to come back down to earth too. Our trade is a vertical spread expiring on October 18th, buying the $40 strike calls and selling the $39 strike calls for a net credit of $0.60. The max gain on 10 contracts is $600, the max loss is $400, and the break even is with GME at $39.60. This trade hasn’t filled yet.

Betting On Our Current Top Name

Bullish Bet #1

Since we launched this Substack at the end of 2022, our weekly top ten names have averaged returns of 22.96% over the next six months. One of our top gainers last year was Super Micro Computer (SMCI 0.00%↑). It was our #1 name again yesterday, and its share price is showing signs of consolidation. Our trade is a vertical spread expiring on August 16th (after its next earnings release), buying the $850 strike calls and selling the $860 strike calls for a net debit of $1.70. The max gain on 2 contracts is $1,660, the max loss is $340, and the break even is with SMCI at $851.70. This trade hasn’t filled yet.

Exiting These Trades

The first two trades are credit spreads, so we’ll just hope those options expire worthless so we can keep our net credit. For the third trade, assuming it fills I plan on setting a GTC order to exit at a net credit of $9 or $9.50, and lower that price, if necessary, as we approach expiration.