“It's OK to have your eggs in one basket as long as you control what happens to that basket.” – Said Founder and CEO of Tesla Elon Musk
Mad Hedge Hot Tips
May 9, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) Tariffs Hit and the Market Goes into Free Fall. It's all about the trade war now, everything else is meaningless. (SPY) is clearly gunning for the 200-day moving average at $275, down 6.8% in a week, after posting the worst week of 2019. Click here.
2) Bonds Challenge New Highs for the Year, taking ten-year US Treasury yields down to 2.43%. German Bunds crater to negative numbers at -0.05% and Japanese government bonds to -0.06%. Why are bonds discounting a recession? Click here.
3) Weekly Jobless Claims Post Modest Fall, down 2,000 to 228,000. As if anyone cared. Holding on to last week’s huge jump is disturbing. Click here.
4) Uber Valued at $82 Billion, a big haircut from earlier indications, in what is certainly the worst timed IPO of the year. You never want to launch an IPO after a stock market crash and a labor strike. Can’t wait to see how the aftermarket trades. Indications down 5%. Click here.
5) SALT Tips. Heard at the Las Vegas SALT conference, Millennials will inherit $30 trillion by 2025 and will account for 75% of the workforce then.
Published today in the Mad Hedge Global Trading Dispatch:
(A NOTE ON OPTIONS CALLED AWAY),
(TLT),
(TRADING THE NEXT KOREAN WAR)
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
May 10, 2019
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(TLT),
(TRADING THE NEXT KOREAN WAR),
Mad Hedge Hot Tips
May 9, 2019
Fiat Lux
The Five Most Important Things That Happened Today
(and what to do about them)
1) It’s Make or Break Time, global trade war and recession or not. The market could be up or down 1,000 points based on what happened this weekend. Click here.
2) US Trade Deficit Hits a 5-Year Low, in March, down 16.2% to $20.7 billion. This is due to a big 23.7% jump in US exports to China, thanks to China’s massive economic stimulus program. But at what cost? Click here.
3) Chevron Walks Away from Anadarko Deal, making Occidental Petroleum the winner in the epic takeover battle. Watch for the (CVX) rally. Click here.
4) Softbank Kills it with Uber Stake, raking in $3.8 billion on its venture capital investment. The big question is whether there’s any juice left in the stock for you. I doubt it. Click here.
5) In the Meantime, the Uber Driver’s Strike Spreads, from the US to London. After car operating expenses are taken out the only net $5 an hour. Click here.
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(NEW TRAINING VIDEO ON “HOW TO EXECUTE A VERTICAL BEAR PUT SPREAD”)
(A COW BASED ECONOMICS LESSON)
(APEX LEGENDS TO THE RESCUE)
(EA)
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
May 9, 2019
Fiat Lux
Featured Trade:
(TRAINING VIDEO ON “HOW TO EXECUTE A VERTICAL BEAR PUT SPREAD”)
(A COW BASED ECONOMICS LESSON),
Mad Hedge Technology Letter
May 9, 2019
Fiat Lux
Featured Trade:
(APEX LEGENDS TO THE RESCUE)
(EA)
I am usually a pretty positive person. However, this bull market is a decade old and all good things must come to an end.
So I thought I would take the opportunity presented by these quiet markets to educate you on the method to my madness.
Markets don’t go up forever. Trees don’t grow to the sky. Sometimes they meander sideways after a long run-up. Sometimes they roll over and die.
So if you want to make money all the time, not only in rising markets, you need to be able to execute a Trade Alert that profits when a stock moves sideways, up small, or down big over a limited period of time.
A Vertical Bear Put Debit Spread tilts the risk/reward balance overwhelmingly in your favor. The only way you can lose money is if the underlying security goes UP a lot immediately.
Hint: Even in a bull market, stocks can move sideways or down for 4, 5, or even 6 months a year. So, a Vertical Bear Put Debit Spread is a valuable tool to have in your tool bag.
It also gives you a nice insurance policy to protect your other long positions in case we get hit with a black swan, suddenly move into a correction, or suffer another flash crash. Remember, in-the-money Vertical Bear Put Debit Spreads do best the fastest in falling markets.
Vertical Bear Put Debit Spreads aren’t always the best bet in a falling market. When you are in a true bear market, just buying long-dated puts outright and running them will make more money. But keep in mind that you are also taking a lot more risk.
You win more games in this business hitting lots of singles, like this one, than counting on a few home runs. That is the classic error of the beginning trader.
My training video on “How to Execute a Vertical Bear Put Spreads” takes you through the entire order process, including reading the initial Trade Alert, placing the order through your online platform, how to monitor it on your position sheet, and of course, how to take a profit.
To watch it, please click here.
Fortnite roiled the video gaming industry last year reinventing the landscape with its freemium model that is available on every platform.
Its in-game add-on revenue strategy is the new model going forward and the first major video game studio to adapt to the new status quo is Electronics Arts Inc. (EA).
The successful earnings report by a newly minted super growth driver and Fortnite competitor called Apex Legends.
Apex Legends copied Fortnite with its 'Battle Royale' format incurring outsized user growth.
Overall, EA’s player base grew to more than 500 million active player accounts in 2019.
This was driven by engagement in the top franchises and live services on major platforms, the game-changing introduction of new IP, including the free-to-play game Apex Legends, offering reach to new audiences around the world is the crux behind short-term bullish momentum in the stock.
Other releases such as "Star Wars Jedi: Fallen Order" will provide another boost to sales momentum as well.
The sports side of the company is also working miracles in a year where both FIFA 18, including World Cup content and FIFA 19 with the UEFA Champions League, had more than 45 million unique players in total playing FIFA games on console and PC.
More than 100 million players engaged with EA’s FIFA franchises on mobile and PC free-to-play during the year as well.
Given investor paralysis across the video game space about revenue stability, competitive moat, and changing revenue models, the predictability and stability of sports demonstrates the breadth of EA’s asset.
Apex Legends is the fastest-growing new game in the history of EA quickly reaching a milestone 50 million players and millions more have continued to participate.
It has also helped EA accumulate new player audiences as nearly 30% of Apex Legends players are new to EA.
The plan for Apex Legends is to deliver this massive global community with a long-term live service, including new seasons with more robust Battle Pass content, new legends and exciting evolutions to the in-game environment.
EA is collaborating aggressively to bring the game to more players in more markets and platforms around the world, including Korea, to take advantage of an opportunity in the market and self-publish Apex Legends via Origin.
EA expects $300 million to $400 million in net bookings for Apex Legends in the fiscal year that ends next March, though that projection doesn’t take into account potential contributions from a mobile version of the game or a version for the Chinese market.
Annual targets were met with GAAP net revenue for the fiscal year registering $4.95 billion delivering EPS of $3.33.
These results enabled EA to deliver an operating cash flow of $1.55 billion and return over $1 billion to shareholders, about 83% of free cash flow, through the ongoing share repurchase program.
The prior quarter was a robust one with EA beating on the top and bottom line.
EA easily beat on the top line with GAAP net revenue for the quarter coming in at $1.24 billion, shattering guidance by $75 million.
Turning to the key catalysts of this quarter, net bookings were $1.36 billion, well above guidance of $1.17 billion, and up from $1.26 billion last year.
To reiterate, the beat was driven by Apex Legends and the outperformance in the blockbuster sports titles.
Digital net bookings were $1.19 billion, up 14% on the year-ago period, driven by strong digital sales of Apex Legends and Anthem.
Digital net bookings represented 75% of the business on a trailing 12-month basis, a new record compared to 68% in the prior year.
Live services net bookings were up 24% to $845 million, primarily driven by Apex Legends.
Live services at EA delivered its best year on record with FIFA and Madden Ultimate Teams both closed the year very strongly.
The gaming environment shows no let up in dollar terms, expect the gaming software market to grow 7% over the calendar year, with mobile up 12%, console up 4% and PC flat.
Estimates for 2020 is for net revenues of $5.4 billion, and cost of revenue of $1.3 billion and EPS of $8.56.
Gaming is still a hot part of tech and after 2018 that crushed Fortnite competition, EA should hold its own with Apex Legends and the strength of its sports franchises.
Shares are up over 20% this year and have more room to the upside.
