“Sometimes, when you jump off a bridge, you have to grow your wings on the way down,” said author Danielle Steele.
Today, I would like to make a suggestion on a covered call.
And the stock is Turtle Beach Corp. (HEAR).
HEAR is trading around $19.60 as I write this.
The December monthly calls expires in 6 days.
I am going to suggest you buy HEAR at the market, which is $19.60.
After you buy the stock, then sell the December $20 call.
Here is that part of the trade:
Sell to Open one December 18th-$20 call for $.65 for every 100 shares you buy.
If these calls are assigned next Friday, the return will be 5.4% for just over a week.
Based on the nominal portfolio, limit the stock buy in to 300 shares, or 5.9% of the tracking portfolio.
Global Market Comments
December 10, 2020
Fiat Lux
FEATURED TRADE:
(MY 20 RULES FOR TRADING IN 2021)
Nothing like starting the new year with going back to basics and reviewing the rules that worked so well for us in 2020. Call this the refresher course for Trading 101.
I usually try to catch three or four trend changes a year, which might generate 100-200 trades, and often come in frenzied bursts.
Since I am one of the greatest tightwads that ever walked the planet, I only like to buy positions when we are at the height of despair and despondency, and traders are raining off the Golden Gate Bridge like a winter downpour.
Similarly, I only like to sell when the markets are tripping on steroids and ecstasy and are convinced that they can live forever.
Some 99% of the time, the markets are in the middle, and there is nothing to do but deep research and looking for the next trade. That is the purpose of this letter.
Over the five decades that I have been trading, I have learned a number of trends and true rules which have saved my bacon countless times. I will share them with you today.
1) Don’t over trade. This is the number one reason why individual investors lose money. Look at your trades of the past year and apply the 90/10 rule. Dump the least profitable 90% and watch your performance skyrocket. Then aim for that 10%. Overtrading is a great early retirement plan for your broker, not you.
2) Always use stops. Risk control is the measure of the good hedge fund trader. If you lose all your capital on the lemons, you can’t play when the great trades set up. Consider cash as having an option value.
3) Don’t forget to sell. Date, don’t marry your positions. Remember, hogs get fed and pigs get slaughtered. My late mentor, Barton Biggs, told me to always leave the last 10% of a move for the next guy.
4) You don’t have to be a genius to play this game. If that was required, Wall Street would have run out of players a long time ago.
If you employ risk control and stops, then you can be wrong 40% of the time, and still make a living. That’s a little better than a coin toss. If you are wrong only 30% of the time, you can make millions.
If you are wrong a scant 20% of the time, you are heading a trading desk at Goldman Sachs. If you are wrong a scant 10% of the time, you are running a $20 billion hedge fund that the public only hears about when you pay $100 million for a pickled shark at a modern art auction.
If someone says they are never wrong, as is often claimed on the Internet, run a mile, because it is impossible. By the way, I was wrong 15% of the time in 2013. That’s what you’re paying for.
5) This is hard work. Trading attracts a lot of wide-eyed, naïve, but lazy people because it appears so easy from the outside. You buy a stock, watch it go up, and make money. How hard is that? The reality is that successful investing requires twice as much work as a normal job. The more research you put into a trade, the more comfortable you will become, and the more profitable it will be. That’s what this letter is for.
6) Don’t chase the market. If you do, it will turn back and bite you. Wait for it to come to you. If you miss the train, there will be another one along in minutes, hours, days, weeks, or months. Patience is a virtue.
7) Limit Your Losses. When I put on a position, I calculate how much I am willing to lose to keep it. I then put a stop just below there. If I get triggered, I just walk away. Emotion never enters the equation. Only enter a trade when the risk/ reward is in your favor. You can start at 3:1. That means only risk a dollar to potentially make three.
8) Don’t confuse a bull market with brilliance. I am not smart, just old as dirt.
9) Tape this quote from the great economist and early hedge fund trader of the 1930s, John Maynard Keynes, to your computer monitor: "Markets can remain illogical longer than you can remain solvent." Hang around long enough, and you will see this proven time and again (ten-year Treasuries at 0.32%?!).
10) Don’t believe the media. I know, I used to be one of them. There is a reason why they are talking heads and not billionaire traders. Look for the hard data, the numbers, and you’ll see that often the talking heads, the paid industry apologists, and politicians don’t know what they are talking about (the Gulf oil spill will create a dead zone for decades?).
Average out all the public commentary, and half are bullish and half bearish at any given time. The problem is that they never tell you which one is right (that is my job). When they all go one way, the markets usually go the opposite direction.
11) When you are running a long/short portfolio, 80% of your time is spent managing the shorts. If you don’t want to do the work, then cash beats a short any day of the week.
12) Sometimes the conventional wisdom is right.
13) Invest like a fundamentalist, execute like a technical analyst. This is what all the pros do.
14) Use technical analysis only, and you will buy every rally, sell every dip, and end up broke. That said, learn what an “outside reversal” is, and who the hell is that Italian guy, Leonardo Fibonacci.
15) The simpler a market approach, the better it works. Everyone talks about “buy low and sell high”, but few actually do it. All black boxes eventually blow up, if they were ever there in the first place.
16) Markets are made up of people. Understand and anticipate how they think, and you will know what the markets are going to do.
17) Understand what information is in the market and what isn’t and you will make more money.
18) Do the hard trade, the one that everyone tells you that you are “Mad” to do. If you add a position and then throw up on your shoes afterwards, then you know you’ve done the right thing. This is why people started calling me “Mad” 40 years ago. (What? Tech stocks were a huge buy the first week of January?).
19) If you are trying to get out of a hole, the first thing to do is quit digging and throw away the shovel. Sell everything. A blank position sheet can be invigorating ad illuminating.
20) Making money in the market is an unnatural act, and fights against the tide of evolution.
We humans are predators and hunters evolved to track game on the horizon of an African savanna. Modern humans are maybe 5 million years old, but civilization has been around for only 10,000 years.
Our brains have not had time to make the adjustment. In the market, this means that if a stock has gone up, you believe it will continue to do so.
This is why market tops and bottoms see volume spikes. To make money, you have to go against these innate instincts.
Some people are born with this ability, while others can only learn it through decades of training. I am in the latter group.
Great Hunter, Lousy Trader
"Bonds are priced artificially because you've got some guy buying tens of billions of dollars worth a month. That will change at some point, and when it does, people are going to lose a lot of money," said Oracle of Omaha, Warren Buffett.
I find it difficult to pass up on taking in call premium. And as such, I am going to suggest you sell calls against the BOX open position
And with the December expiration a week and one half away, we have 7 days to watch the premium melt away.
As such, here is the suggestion:
Sell to Open (1) December $18 Call for every 100 shares you buy.
You should be able to sell them for 25 cents each.
This will bring the premium collected on this position to $1.30 per share.
This alert applies to you only if you own shares in BOX.
Global Market Comments
December 9, 2020
Fiat Lux
FEATURED TRADE:
(THE DEATH OF KING COAL)
(KOL), (PEA)
Eighteen months ago, an unknown vaccine developer called Novavax (NVAX) confronted an existential terror: getting delisted by the NASDAQ stock index.
This threat came on the heels of the company’s second failed vaccine study in less than three years, plunging Novavax shares to less than $1 for 30 straight days and triggering a warning from NASDAQ.
Desperate to keep the company going, Novavax sold two of its manufacturing plants in Maryland, cutting the payroll by over 100 employees.
By January 2020, Novavax only had 166 employees in its roster and was priced at $4 per share.
By December of the same year, Novavax more than tripled its workforce and the stock has risen to $128 per share.
What a difference a year—and a global pandemic—could make.
To date, Novavax stock has already skyrocketed to over 3,000%—shattering even the wildest dreams of its early investors. And this isn’t the best news yet.
Like Moderna (MRNA), another small biotechnology that skyrocketed this year, Novavax is projected to enjoy more room for growth in the succeeding years.
Despite the similarities in their achievements, there has been a notably sizable gap between the valuations of these two biotechnology companies in the Operation Warp Speed list.
The valuation gap would probably make more sense now, especially since Moderna has the golden ticket when it comes to high efficacy results for the COVID-19 vaccine, while Novavax has yet to prove its candidate’s worth.
However, Novavax isn’t out of the race just yet. Novavax plans to end 2020 with a bang by launching pivotal COVID-19 vaccine trials for its candidate, NVX-CoV2373, in the US and Mexico.
While the old saying, “The early bird gets worm,” is frequently accurate and we’ve seen how first-movers generally attain the highest success, this may not be the case here.
In view of the COVID-19 vaccine race, there’s a realistic possibility that Novavax will come out as a bigger winner than Pfizer (PFE) or Moderna (MRNA) in the long run.
Admittedly, it’s encouraging for vaccine developers to know that RNA vaccines, such as Pfizer and BioNTech’s (BNTX) BNT162b2 and Moderna’s mRNA-1273, are effective.
It’s definitely even more encouraging to learn that the second type of vaccine, which is being developed by AstraZeneca (AZN) and Oxford, also offer successful trials.
However, the potential of Novavax’s vaccine candidate proves that there are many ways to skin the cat.
This protein-based vaccine, which also caught the attention of Microsoft (MSFT) co-founder Bill Gates, is expected to show the best results among all the developers.
Although its competitors are months ahead in their tests, NVX-CoV2373 actually outshone the rest of the developers on key metrics in the monkey and even human tests.
Moreover, Novavax’s technology offers versatility, which means it can be applied to other vaccines and treatments as well.
If NVX-CoV2373 gains approval, the company will easily continue this momentum in 2021 and in the next years.
The market opportunity presented by the demand for a COVID-19 vaccine is unbelievable.
Priced at $16 per dose, Operation Warp Speed shelled out $1.6 billion to buy 100 million doses of the Novavax vaccine.
Considering that this is a two-shot vaccine, this would only cover 50 million people.
Although the price may be higher or lower depending on various factors, $16 per dose is a good starting point for a back-of-the-envelope calculation.
What we know so far is that Novavax has already secured agreements to manufacture more than 2 billion doses.
Taking into consideration the price point of $16 for each dose, that easily gives the company a potential revenue of a whopping $32 billion in 2021.
The upside is surreal.
Plus, we still have no guarantee whether the need for a COVID-19 vaccine will be a one-time requirement or a yearly ritual like flu shots, which Novavax also has covered with the production of its new drug, Nanoflu.
As the market continues to swoon over the huge updates from Pfizer and Moderna, it no longer comes as a surprise when other candidates are glossed over.
Novavax isn’t about to start selling its COVID-19 vaccine tomorrow, but it’ll probably release critical data in the next months.
Assuming that it gets regulatory approval by the first half of 2021, it’ll begin to realize the upside almost instantaneously.
At $8 billion market capitalization, Novavax stock could easily triple to $24 billion by the time the vaccine is released.
I believe Novavax offers a potential long, and I find myself getting bullish on this stock.
Although it has a limited pipeline at the moment, I think positive data from its COVID-19 vaccine candidate will serve as a catalyst for this stock to trade much higher in the future.
While I can see that Novavax is widely considered as a dark horse in this race, I believe it’s going to be a dark horse that can lead us out of this darkness soon.
Global Market Comments
December 8, 2020
Fiat Lux
FEATURED TRADE:
(THE BRAVE NEW WORLD OF ONLINE RETAILING),
(SNAP), (GPRO), (APRN), (SFIX)
EGAN is up slightly since I suggested buying the stock back on November 25th.
It is up against some short term technical resistance and as such, I am going to suggest you close the position.
Sell EGAN at the market, which is $11.74.
The result will be a small gain of 3.4% for 10 days.
If you traded the suggested 400 share lot, the cash return will be $156.
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