“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, March 16, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



UPDATE for Option PUT Trades – LUV - IBM, INTC, ORCL, AAPL – MCD, DRI, YUM, SBUX

Thursday, March 19, 2020


Southwest Airlines Co (NYSE:LUV) PUTS

** OPTION TRADE: Buy the LUV APR 17 2020 35.000 PUTS at approximately $4.00.

Bought 6.50 High 9.78

 

TECHNOLOGY STOCKS

** OPTION TRADE: Buy IBM APR 17 2020 95.000 PUTS. ($3.20)

Low 4.50 High 7.50

** OPTION TRADE: Buy INTC APR 17 2020 45.000 PUTS. ($3.70)

Low 2.24 High 4.60

** OPTION TRADE: Buy ORCL APR 17 2020 40.000 PUTS. ($2.70)

Low 1.55 High 3.43

** OPTION TRADE: Buy AAPL APR 17 2020 200.000 PUTS. ($10.20)

Low 8.15 High 11.88

 

RESTAURANT STOCK

** OPTION TRADE: Buy MCD APR 17 2020 130.000 PUTS. ($7.40)

Low 8.25 High 17.70

** OPTION TRADE: Buy DRI APR 17 2020 35.000 PUTS. ($3.50)

Low 7.70 High 12.50

** OPTION TRADE: Buy YUM APR 17 2020 55.000 PUTS. ($4.30)

Low 3.83 High 5.90

** OPTION TRADE: Buy SBUX APR 17 2020 55.000 PUTS. ($3.20)

Low 4.55 High 8.75


Option PUT Trades – IBM, INTC, ORCL, AAPL – MCD, DRI, YUM, SBUX

Wednesday, March 18, 2020

TECHNOLOGY STOCKS

** OPTION TRADE: Buy IBM APR 17 2020 95.000 PUTS. ($3.20)

** OPTION TRADE: Buy INTC APR 17 2020 45.000 PUTS. ($3.70)

** OPTION TRADE: Buy ORCL APR 17 2020 40.000 PUTS. ($2.70)

** OPTION TRADE: Buy AAPL APR 17 2020 200.000 PUTS. ($10.20) -- We previously had a put trade on this stock but this expires Friday - and you probably exited already - so another chance to profit!)

RESTAURANT STOCK

** OPTION TRADE: Buy MCD APR 17 2020 130.000 PUTS. ($7.40)

** OPTION TRADE: Buy DRI APR 17 2020 35.000 PUTS. ($3.50)

** OPTION TRADE: Buy YUM APR 17 2020 55.000 PUTS. ($4.30)

** OPTION TRADE: Buy SBUX APR 17 2020 55.000 PUTS. ($3.20)

NOTE:

Let us make the most of the downturn as at some stage we need to look for these stocks to bottom. Yesterday provided some false hope but we are certainly not out-of-the-wood- as yet.

If at all possible, make some profit and then exit at your discretion.

Where We Are.....

Stock futures have fallen again this morning as the markets remained highly volatile with the government response to the coronavirus fallout still unfolding.

Futures on the Dow Jones Industrial Average have fallen 821 points, indicating a more than 1,000-point loss at today’s open; S&P 500 down 92 points and Nasdaq futures down 328 points. were also down.

Futures contracts for the indices were in “limit down” territory, a situation where trading is halted after they have hit a 5% loss and can go no lower.

Yesterday the markets rebounded from their deepest rout since 1987 on hopes that the Trump administration’s massive fiscal stimulus plans will rescue the economy, which is at risk of falling into a recession due to the coronavirus impact.

The Dow soared more than 1,000 points on Tuesday to cap off another volatile session, making back less than half of Monday’s steep losses. The S&P 500 gained 6%.

Wall Street has been on an unprecedented roller-coaster ride amid the coronavirus turmoil, with the S&P 500 swinging 4% or more in either direction for seven consecutive sessions. This tops the previous record of six days from November 1929.

Efforts to Support the Stock Market Stability......

The White House is weighing a fiscal package of more than $1 trillion that includes direct payments to Americans and financial relief to small businesses and the airline industry.

Treasury Secretary Steven Mnuchin also said corporations will be able to defer tax payments of up to $10 million while individuals could defer up to $1 million in payments to the Internal Revenue Service.

Yesterday the Federal Reserve’s amped up effort to help companies having a hard time getting short-term funding. The bank announced a special credit facility to purchase corporate paper from some issuers. This follows the Fed’s emergency $700 billion quantitative easing program and a further 100 basis point cut to interest rates on Sunday.

“Signs are that the pandemic will be brought under control and that the economy will get enough support to weather the storm,” said Brad McMillan, chief investment officer at Commonwealth Financial. “Make no mistake, there will be damage. But from a market perspective, the question will be whether the damage is greater than markets now expect, or less.”

Business Efforts To Stem Virus.....

Businesses are also looking to slow the spread of the coronavirus.

On March 15, Starbucks moved into a "to-go" only model for its stores in the U.S. and Canada for at least two weeks. The company also shuttered some of its stores in high-social gathering areas, like universities. Starbucks stock is more than 40% off its 52-week high.

Dow Jones stock McDonald's (MCD) quickly followed suit, closing the seating areas in corporate stores to focus on drive-through orders, walk-in and takeout purchases and delivery.

So.....

Meantime, let’s benefit from this volatility which is showing “more down than up.”

Keep your sell points sensible and do not be too greedy.


Option Trade – Southwest Airlines Co (NYSE:LUV) PUTS

Monday, March 16, 2020

** OPTION TRADE: Buy the LUV APR 17 2020 35.000 PUTS at approximately $4.00.

NOTE: Due to the stocks being down pre-market, you will need to adjust the entry price.

Also note, this trade has a shorter expiry time than usual due to market volatility.

For those members that are able to watch the market movement it would be advisable to watch for the best exit moment.

Otherwise, here are some guidelines…..

Place a pre-determined sell at $8.00.

Include a protective stop loss of $1.60.

Airline stocks tumbled toward fresh lows in premarket trading Monday, after the U.S. expanded its travel ban to the U.K. and Ireland and amid growing fears of a global recession as COVID-19 spreads.

And, Southwest Airlines Co (NYSE:LUV), a passenger airline that provides scheduled air transportation in the United States and near-international markets, was down about 11% at the time of writing.

J.P. Morgan analyst Jamie Baker cut price targets on airline stocks, saying he believes the collapse in air travel demand "has the potential to materially reshape global aviation, meaningfully more than the events of 9/11."

Shares of U.S. airlines had taken another nosedive last Thursday in the wake of temporary travel restrictions in the U.S., triggered by the novel coronavirus pandemic.

The U.S. has banned most travel from Europe for 30 days starting on Friday and has advised residents not to travel abroad as it tries to contain the pandemic. The new restrictions delivered another blow to an airlines industry already reeling from diminished travel due to contagion concerns.

“However bad you thought it was, it’s worse,” said Cowen analyst Helane Becker in a note Thursday.

Southwest Airlines, one of the few U.S. airlines still flying a full schedule even as the spreading coronavirus has sapped demand, said on Saturday it was "seriously considering" cutting flights in the short term.

Southwest spokeswoman Michelle Agnew said the company would monitor demand for additional reductions after a first round of cuts.

The low-cost carrier does not fly to any of the destinations that have been affected by health alerts and a growing list of U.S. travel restrictions as coronavirus cases climb worldwide.

Southwest’s stock has dropped 24% this year, less than any other U.S. carrier. There’s a reason for that—its industry-leading balance sheet. The low-cost airline has $5.3 billion in cash and short-term investments available, plus a credit line of $1 billion. Its long-term debt/Ebitda (earnings before interest, taxes, depreciation, and amortization) ratio sits at a comfortable 0.7 times. Bernstein analyst David Vernon estimates that Southwest has $23.3 billion in untapped liquidity at its disposal, enough to last quite a while. Southwest has the least amount of debt, just $4 billion compared with $17 billion at Delta.

Still, expect it to take a revenue hit.

However, the airline had already warned that the epidemic could wipe up to $300 million from its first-quarter operating revenue, with Chief Executive Gary Kelly warning earlier this month that reducing prices would not address consumer fear.

The total impact is probably worse. Earnings growth, already challenged, will also take a shot.

Southwest expects to miss their Q1 unit revenue forecasts by at least 5 percentage points, with the entire shortfall coming in March.

So.....

In short, Q1 is shaping up to be a bad quarter for airlines, and Q2 will be much worse. Jet fuel prices have fallen by about $0.90 per gallon since the beginning of 2020 -- enough to offset a roughly 10% revenue decline for most airlines. Flight reductions and other cost-cutting measures could potentially offset another 10% to 20% revenue loss. But if airlines see a short-term revenue decline of up to 70%, there's no way they will be able to reduce their costs enough to remain profitable.

Southwest Airlines has a 52 week low of $42.72 and a 52 week high of $58.83. The firm has a market cap of $23.41 billion, a PE ratio of 10.68, and a price-to-earnings-growth ratio of 1.16 and a beta of 1.59. The business has a 50-day moving average price of $54.51 and a 200 day moving average price of $54.60. The company has a current ratio of 0.67, a quick ratio of 0.61 and a debt-to-equity ratio of 0.30.