Weekly Issue / Trade Alert: A New Put Play as Kids Stop Playing with Toys
Key Points from this Alert:
- We are adding the Mattel (MAT) April 2018 13.00 put (MAT180420P00013000) that closed last night at 0.50 to the Tematica Options+ Select List. We are setting a buy stop order at 0.30 to limit potential downside associated with this trade.
- Given spillover concerns for Toys R Us and the findings in the February Retail Sales Report, we are keeping our short trade in Target (TGT) shares intact.
- We are also adjusting our buy stop order to $75 from $80.
- We continue to have a Buy rating on GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000) that closed last night at 0.65.
- We continue to have a Buy rating on microcap Cashless Consumption company MoneyOnMobile (MOMT).
As I alluded to in yesterday’s weekly issue of Tematica Investing, volatility remains with us, stoked by investor concerns over a potential trade war with China. My perspective remains unchanged as I see this as more saber rattling on the part of President Trump to negotiate new trade deals.
Over the coming days, as attention is refocused on the Fed’s next monetary policy meeting that concludes next Wednesday, I expect the investment community will be parsing even more closely comments to be had from new Fed Chair Jerome Powell on the economy, interest rates, and how the Fed has updated its view on tax reform benefits and a potential trade war. While we may see a calm day or two between now and next Wednesday, odds are we are far more likely to see the recent market choppiness continue. This can make for a challenging market for stocks in the short-term, and even more so for options, particularly call options.
Adding a put play on Mattel
Today, we are adding a put option on the shares of beleaguered Mattel (MAT). As I pointed out in yesterday’s Tematica Investing, Mattel shares are staring down the bankruptcy of a key customer – Toys R Us – and the likely liquidation will cause problems for other key customers, such as Walmart (WMT) and Target (TGT). We’ve seen this before with Nike (NKE) and Under Armour (UAA) when Sports Authority went out of business.
The second challenge Mattel is facing comes from our Connected Society and Content is King investment themes in the form of digital entertainment and gaming that are replacing traditional action figures, dolls, board games and related items. It seems this is not lost on Wall Street as MAT shares have been racking up downgrades following Toy Fair 2018, one of the preeminent events in the toy industry. In my view, the comments from the analyst at D.A. Davidson summed up what many saw from Mattel at the event – “We came away from MAT’s analyst meeting and Toy Fair booth with no incremental positive data points.”
With Toy Fair 2018, a key event for the toy industry, behind us by several weeks, we are in a no man’s land for toy sales at least until Disney’s next Avenger’s movie hits theaters in late April. That leaves few positive surprises to offset the potential negative to be had by Toys R Us going belly up. Given prospects for greater harm in the near-term, I’m adding the Mattel (MAT) April 2018 13.00 put (MAT180420P00013000) that closed last night at 0.50 to the Tematica Options+ Select List.
For those wondering why Mattel vs. Hasbro (HAS), Hasbro has the licenses for Star Wars and several other high profile properties as well as a dividend stream that should help support the shares. By comparison, Mattel has arguably dated franchises (sorry to say that to all you Barbie fans out there) and no dividend.
As I put this put option into play, I’m setting a buy stop order at 0.25, which will contain any potential losses should the rumor mill begin chatter of a bid to save Toys R Us.
- We are adding the Mattel (MAT) April 2018 13.00 put (MAT180420P00013000)that closed last night at 0.50 to the Tematica Options+ Select List. We are setting a buy stop order at 0.30 to limit potential downside associated with this trade.
Remaining bearish on Target shares
Given my comments on the spillover to be had from Toys R Us as well as the findings in the February Retail Sales Report that showed sales at general merchandise stores like Target falling month over month. The same report also showed continued year over year declines at sporting goods stores during February. In keeping with our bearish thesis on Target shares, as well as our bullish one on Amazon (AMZN), nonstore retail sales rose more than 10% year over year in February and also by more than 10% year over year for the Dec. 2017-Feb. 2018 period – both were more than double comparative results for retail and even more so vs. general merchandise stores for the same periods. In my view, this confirms that consumers continue to migrate toward digital shopping rather than wander the aisles at Target stores and others.
In short, I see more pain ahead for TGT shares, which have already fallen more than 5% since put the position into play a few weeks ago. This is leading me to move our buy stop order for this short position to $75 from $80, just above our $74.66 entry point for this short trade.
- Given spillover concerns for Toys R Us and the findings in the February Retail Sales Report, we are keeping our short trade in Target (TGT) shares intact.
- We are also adjusting our buy stop order for this short trade to $75 from $80.
GSV Capital reports its December quarter – what does it mean?
On Tuesday night GSV Capital, an Asset-Lite investment theme company that invests in private technology companies reported its December quarter results with EPS smashing through expectations even though its revenue slightly missed expectations. Candidly, the December quarter saw a lot of fine tuning in the investment portfolio, but also the adoption of a lower management fee structure by the company as well as efforts to streamline its investment portfolio and investment focus. In my opinion, this is a positive step that should lead to better returns and greater earnings to GSV’s bottom line.
The key driver to our thesis on the shares is the monetization of its Dropbox and Spotify shares as well as the potential for its largest holding in big data company Palantir to go public in the coming quarters. While GSV didn’t spill the beans, it reminded us that Spotify will hold its Investor Day today ahead of going public in late March or early April. Also this week Dropbox announced a price range for its pending IPO of $16-$18.
All in all, the timetable for these IPOs rest well within the June expiration for our GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000).While the underlying shares are trading off in response to the quarterly report, I expect the focus to return to the windshield instead of the rearview mirror following Spotify’s analyst meeting and as these two transactions move closer to reality. If one is successful, we should see a nice move up in the net asset value (NAV) for GSV’s investment portfolio, which stood at $9.64 exiting December. If both IPOs are successful, then we are likely to see a more pronounced move in GSV’s NAV, which should boost the underlying share price for our GSV calls.
- We continue to have a Buy rating on GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000)that closed last night at 0.65.
Housekeeping
Later this week the Utilities Select Sector SPDR ETF (XLU) March 16, 2018 54.00 calls (XLU180316C000540000) will expire. Unless you have several thousand of these calls, odds are it will cost you more to trade out of them than simply letting them expire. My advice is to do the latter. Win some, lose some as they say and this winter season despite the record cold, our trades on XLU shares did not pan out for us this year.
With MoneyOnMobile (MOMT) shares, it has been a quiet week following the LD Micro Virtual Conference. That said, there was a good article on the company and the opportunity to be had in India that ran on PaymentsSource, which you can find here.Of particular note, CEO Harold Montgomery reiterated the timetable for MoneyOnMobile to move into profitability later this year. The larger opportunity as well as the transition into the black, keep my Buy rating intact on this microcap Cashless Consumption play.
