WEEKLY ISSUE: While The Turmoil Keeps Rolling, We Take Some Cards Off the Table
- We are issuing a Sell rating on and removing the iShares 20+ Year Treasury Bond ETF (TLT) 119.00 calls (TLT180615C00119000) that closed last night at 2.56 from the Tematica Investing Options+ Select List.
- We are issuing a Buy on and adding the Costco Wholesale (COST) June 15, 2018 200.00 calls (COST180615C00200000)that closed last night at 4.62 to the Tematica Options+ Select List. As we do this, we are setting a stop loss at 3.25 to limit potential downside.
- Stopped out of our short in Funko (FNKO) shares for a loss.
Over the last week, the iShares 20+ Year Treasury Bond ETF (TLT) 119.00 calls (TLT180615C00119000) that we added to the Tematic Options+ Select List gapped higher as the drama in Italy heating up sending the domestic stock market sharply lower after the Memorial Day holiday. With calmer heads prevailing yesterday, we saw the calls give back some ground, but even so they finished at 2.56 as of last night’s close – up just over 200% in the last four trading days.
Not too shabby if I say so myself. While I saw the storm that would trigger that move rolling in, odds are the market volatility that led to swings in the market like the one we’ve seen this past week are likely to remain in place as we approach the potential June 12 trade summit. With that in mind, I’m inclined to exit this short-term focused trade and use the proceeds to roll into another short time framed call option trade.
- We are issuing a Sell rating on and removing the iShares 20+ Year Treasury Bond ETF (TLT) 119.00 calls (TLT180615C00119000) that closed last night at 2.56 from the Tematica Investing Options+ Select List.
Adding a short-term call trade for Costco Wholesale
In yesterday’s weekly issue of Tematica Investing, I previewed consensus expectations ahead of Costco Wholesale’s (COST) next quarterly earnings report that lands after tonight’s close. To quickly recap, over the last several months Costco’s monthly same-store-sales have shown it clearly taking consumer wallet share, and its been opening a steady stream of new warehouse locations. Those openings equate to 20 additional warehouse open during the quarter compared to the year ago one, which paves the way for favorable membership fee revenue prospects. As a reminder, that membership fee revenue is high margin in nature and accounts for a meaningful percentage of Costco’s operating profit. In the last reported quarter those fees accounted for 73% of the company’s operating profit. Like I said, meaningful.
From a trader’s perspective, Costco has a track record over the last year of beating consensus EPS expectations by 3%-8%. With such a strong number of new warehouse locations opened over the last year, it sets the stage for that track record to continue. Moreover, with another 17 planned to open in the coming months as well as consumers looking to offset the bite of rising gas prices and stretch disposable dollars where and when they can, it looks like Costco should issue a favorable outlook as well.
To capitalize on this, I’m adding the Costco Wholesale (COST) June 15, 2018 200.00 calls (COST180615C00200000) that closed last night at 4.62 to the Tematica Options+ Select List. It should be noted that COST shares have melted up over the last few days, which likely means expecations are running high heading into the earnings report. Therefore, I’m setting a stop loss at 3.25 to limit potential downside in the trade.
- We are issuing a Buy on and adding the Costco Wholesale (COST) June 15, 2018 200.00 calls (COST180615C00200000)that closed last night at 4.62 to the Tematica Options+ Select List. As we do this, we are setting a stop loss at 3.25 to limit potential downside.
Stopped out of the short position in Funko shares
Over the last week, shares of pop culture memorabilia company Funko (FNKO) have melted higher despite increasing data that reinforces our Cash-strapped Consumer investing theme. As the shares crossed the $10 mark, it triggered our cover price for the trade, stopping us out in the process with a loss of roughly 22% for the trade.
