Saltpeter Rising (AOBC,AAPL,IEF,OSX)

It’s shaping up to be one weird summer.

 

Consider what our fellow Norman, Hugh L. O’Haynew, wrote last week about the market’s ‘fear gauge’, the VIX.

And whaddaya know, last week the damned thing fell to 9.37, just spitting distance from her all-time low of 9.31 back in December of 1993.

 

As for volatility compression, of which Hugh spoke at length, we still haven’t seen anything noteworthy, though that doesn’t mean a meaningful decline has been avoided.  Everything is still possible.

 

Including War?

 

Now, we don’t like to get caught up in hysterics.  And the media is good at nothing if not that: working up folks into a lather – as, indeed, it appears the baseball shooting whacko from Illinois was.

 

But we can’t help feeling that conflict and rage and violence have managed to creep their way into our daily lives and find a more or less comfortable place there over the last couple of years.

 

The question is have we gotten used to it?  Are these phenomena now acceptable to us?

Consider the following –

 

  • During the Obama years there was a huge spike in the number of ‘militias’ operating in the U.S., a perfectly legal, if somewhat surprising phenomenon. That number now stands in the vicinity of 170 open groups with a licensed, gun carrying membership.  There are no doubt many more that are less than open.  So be it.

 

  • Add to that a great number of criminal organizations with just as many weapons and members, if not more, and…

 

  • Now a third group (at least) of – how shall we say – left-wing or Democrat warriors has emerged that has started stockpiling weapons and other supplies in the face of what they predict will be a Trump-induced economic meltdown and the chaos that will inevitably follow.

 

Surprising?

 

According to The Trace, FBI background checks for gun ownership soared to a daily record high directly after November’s election, registering 185,713 in just a single day!

 

And who’s doing the buying?

 

Not likely Republicans, whose buying frenzy before the election – when it appeared a Hilary victory was likely – simmered right down after their man was elected.

 

Rather, a group called the Liberal Gun Club reports a huge rise in interest and enrolment since November, and their administrators expect a great deal more.  NBC News also reports that a great many minority buyers flooded the market at the time, in what appears to be a defensive response to a ‘racist’ president whom they feared would embolden extremist and neo-Nazi groups across the country.

According to the BBC, another outfit called “Pink Pistols”, a Gay and Lesbian gun ownership group, has seen its numbers swell, too, though they’ve had a mixed, non-binary reaction on the range.

 

And it doesn’t end there.

 

Earlier this week, a Florida Sherriff posted a controversial YouTube message on his Facebook page, declaring.

 

“What’s next is to fully understand that this is war, and you better be prepared to wage war to protect you, your family, and those around you if attacked… [T]hey will use guns, knives, bombs, and even trucks to kill innocents.  What they don’t count on is being attacked themselves, having to become defensive to save their own lives.”

 

Whew!

 

A genuine call to arms from a police officer (not the first, by the way) in response to terror-type incidents like the ones recently witnessed in England.

 

All that weaponry and nowhere to point it?

 

We pray the summer is a peaceful one, but we’re betting on a further rise in retail personal protection sales.

___________________________________________________

 

Before we issue our initiative for the week, however, we have a couple of open trades to discuss.

 

The first relates to our March 16th letter, Long Legged Copper Trade, in which we recommended selling two OSX June 145 PUTS, each of which went for $1.80, to offset the debit on an earlier OSX trade that went bad.

 

One day before those options expire (today), the trade looks to be in jeopardy, so we’re recommending you take the following immediate rollout action –

 

Buy back this Friday’s OSX June 145 PUTs for 11.50 each and sell the OSX September 145 PUTs for $11.50 each.  Net zero is the result.

 

Next is our May 4th trade from a letter called Best Be Bond Bound, in which we urged you to consider buying the IEF September 15th 109 CALL for $0.55 and selling the AAPL June 16th 155 CALL for $0.57.  Total credit on the trade was $0.02.

 

We suspected a high flying Apple would shortly get a gut-punch and Treasuries, as a group, would rise.

 

And so it was.  Today, the IEF September CALL goes for $0.52, while the AAPL CALL is $10 out-of-the-money with less than 24 hours remaining before expiry.  Sell the first and leave the second to rot, and you come away with $0.54 on nothing laid out.  Adjusted for minimum commissions, the trade gives you a win of 260% in just over a month.

 

Finally! The Moment You’ve Been Waiting For…

 

We ran a trade back in August of last year that featured the former Smith and Wesson, now American Outdoor Brands (NYSE:AOBC).  It was called The End is Near, and in it we suggested the purchase of a SWHC January 31 CALL for $2.85, and the sale of a SWHC December 31 PUT for $3.20.  Total credit on the pair was $0.35.

 

But it didn’t work.

 

With the Trump Presidency, gun-maker stocks dove (at first), and our PUT expired in-the-money.  We got stuck buying a board lot of AOBC at $31 while the stock struggled well below that level.

 

But now things have changed.

 

Take a look here –

This is the daily trade on AOBC for the last six months, and as you can see, the trend is now solidly bullish.

 

After bouncing off a March bottom, price is now back above her moving averages (in blue) and RSI and MACD are trending comfortably above their respective waterlines (green).

 

The weekly chart is also strong –

 

Here you can see RSI, which surfaced back in April, being followed by MACD above her midway waterline (in green).  When that finally occurs – perhaps as early as next week – bullish momentum on the stock will be confirmed and new technical buying will likely ensue.

 

We would only add that despite the deep retracement that ran from last August through December, a decline of greater than 30%, AOBC’s moving averages never rolled over, a sign that the shares remain solidly bullish (blue square).

 

That said, we’re going to leave our AOBC long position open, and sell PUTs directly below support at the bunched moving averages at $22.50 (daily chart).

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Many happy returns,

 

Matt McAbby

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