When the Bystander Wins (FXI,GWW,FCX,BUD)

When the Bystander Wins (FXI,GWW,FCX,BUD)

 

A brief word to our friends and fellow citizens caught in the belly of the whale down in Houston – stay brave, dear brothers, and be good to each other.  You’re a tough bunch, and you’ll pull through.  We’re thinking and praying for you.

 

And speaking of a hard rain falling, how about Pretty Boy Nukey, North Korea’s dictator du jour, who looks to be begging for a whooping?

 

Now, even we understand the need to flex some muscle once in a while, and to assert one’s independence, but this looks a little exaggerated.  Sending missiles over the Japanese mainland is either a rookie mistake, or an outright request for a confrontation.

 

In any event, we’ll have more to say on the matter in a moment – including a trade founded on the chubby one’s latest adventures – but first a little business.

 

Two for the Record Books

 

We’ve got three trades to address today, two of which brought worthy profits.

 

We’ll kick off with our July 20th initiative, from a letter called Breaking Bulletin Bids Buyers Beware!, in which we recommended you buy the GWW December 15th 150 PUT for $5.80 and sell the GWW December 15th 170 CALL for $5.70.  Total debit on the trade was $0.10.

 

And it’s all come together splendidly!

 

Today, the PUT trades at $5.90 and the CALL for $3.90.  Sell the former and buy back the latter and you pull in two bucks on a dime laid out.  Call it 1850% in six weeks.  Annualized, that’s a better than 16,000% return.

Thanks, Cass.

 

Next up is our trade from the following week (7/27).  The letter was called Metals. Now., and in it we implored you to sell the FCX September 1st 15 CALL for $0.68 and the FCX November 17th 13 PUT for $0.47, and use the proceeds to buy the FCX January 19th 16 CALL for $1.19.  Total debit on the trade was $0.04.

 

The way it currently stands, we’ve decided it’s best to close down the September 1st CALL.  It’s only got a day left before expiry, but we prefer not to take any chances.

 

As of this writing, it sells for $0.06.  Dump it, and leave the remaining options to play.

 

For those who want to risk holding the 15 CALL, fine.  Just beware the potential results of a dance with Reynard, the ball-eyed, trans Plutonian.

And that brings us to our final trade for the day, the beer swiller’s thriller, opened on August 11th in a posting called NORMANDY’S North Korean Missile Defense Issue.  Our advice in that letter was to sell three (3) BUD August 25th 113 PUTs for $0.45 each and buy the BUD December 15th 135 CALL for $1.30.  Total credit on the trade was $0.05.

 

The short PUTs expired worthless last Friday and the 135 CALL now fetches $0.65.

 

Our feeling is to drop the lot of them, take the money, and get outta Dodge.  Yes, the option has another 100 days before expiry, but 135 is still a distance away (BUD is now trading at $117.76) and the $0.65 on offer is all time value.

 

Anything could happen.

 

Better not to let it.

 

All in, if you follow our lead to shut her down, your profit is a neat 367%.

A Man in Love With The Green…

 

We turn our attention back to the Far East now and the latest developments in the Korea story, which – we’re unabashedly inclined to proclaim – is still a major story.  It may get pushed off the front burner after a top White House staffer makes a pronouncement or talks down the inevitability of war, but to our understanding, we’re a far cry from concluding this increasingly boggy mess.

 

Consider –

 

  1. Two days ago, North Korea launched a ballistic missile over Hokkaido, Japan’s northern most island, allegedly from a submarine,

 

  1. Japan ordered residents immediately to seek shelter underground or in ‘solid buildings’, and termed the escalation ‘an unprecedented, grave threat’,
  2. The U.S. Air Force tested ‘steerable’ B61-12 gravity bombs in order to measure the weapon’s “non-nuclear functions and the aircraft’s capability to deliver the weapon”,

 

  1. President Trump responded in a broadly hinted tweet that North Korea “…has signaled contempt for its neighbors, for all members of the United Nations, and for minimum standards of acceptable international behavior”,
  2. Recent polling reveals Americans generally in favor of military action against North Korea, if they (N.K.) initiate hostilities,
  3. And both Russia and China now claim publicly that sanctions against the rogue nation have been exhausted.

 

As a whole, it doesn’t appear either side can back down without losing face internationally.  Nor is it possible, according to experts, for a first strike by either side to bring about a solution that doesn’t entail a massive body count.

 

All told, the thing is grim.

 

But for investors, there could be an interesting way of playing it.

 

Both Russia and China stand to gain from a weakened U.S. or North Korea.  Neither has a particular fondness for the communists of Korea, and would be happy to be rid of the problem of a wacky nation with nuclear weapons on their borders.

 

The Russian stock market added better than fifteen percent while tensions mounted over the summer, and the Shanghai market rose a shade more.

 

Our feeling is that any lead-up to hostilities would bring regional, safe-haven money into Chinese shares, certainly over the short term.

 

But over the long term, Chinese shares, as represented by the iShares China Large Cap ETF (NYSE:FXI), look especially enticing.

 

Have a look at a weekly chart for the last three years –

The weekly chart shows price breaking convincingly above the $39 line for the first time in two years.  With all the salient moving averages now trending higher, $39 now marks strong support, and with that in mind, we’re taking the following action.

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Many happy returns,

 

Matt McAbby

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