Tortoise vs. Hare, Avionic Version (BA,NOC,HYG,BIDU,QQQ)
Where in the world will it end?
General Jenny Tull, the first female, four-star officer in the U.S. armed services, yesterday announced procurements totaling $82 million for the purpose of ‘gender nullification initiatives’ and ‘tactical androgen support ops’.
Although our efforts to contact the General’s office have yet to meet with a reply, our curiosity as to what those two items would look like in some of the Mrs.’ choicest lingerie have set our hearts absolutely a’flutter!
And further, we ask: is there a chance that Jenny Tull’s own tacticals have ever been manacled? Her cuticles ridiculed? Or her clavicles or mandibles manhandled?
Moreover, what, pray tell, turned the general into such an irascible Hannibal, so fanatically concerned with the exclusively bacchanal?
Call us puritanical, but when the goal of armies turns from killing the enemy into a vehicle for social engineering, all hope of victory is lost.
The Death of War
Thankfully, there are still those who believe that wars have to be won, and most of them walk the corridors of the corporate weapons industry.
We’ll return in a moment to discuss that most bellicose bunch, but first, we have a number of trades to bring to your attention.
We begin with an initiative launched back on the 4th of April in a letter called Junk Skew Calling. There, we urged you to get high on yield by buying the HYG January (2019) 83 CALL for $5.30 and selling the HYG January (2019) 83 PUT for $5.45. Total credit on the trade was $0.15.
As we write, the CALL sells for $5.25 and the PUT for $4.15. Sell off the former and buy back the latter and you come away with $1.25 on absolutely nothing laid out.
After accounting for minimum commissions, that’s a gain of 733%.
Moving on, we get to our August 1st trade and a letter called Warning: Pluto Now Traversing Uranus! The letter implored you to consider selling a straddle that consisted of the BIDU August 25th 230 CALL for $2.29 and the BIDU August 25th 210 PUT for $2.01, for a total credit of $4.30.
And what happened?
Exactly as we expected. The stock slid sideways and both options expired worthless, leaving us with the full premium pocketed at the outset. That’s a 100% gain, and it beats getting splashed with boiling oil.
A week later, on the 8th of August, we sent you a letter called It’s Gonna Blow! Lance it! The idea was to capitalize on an upcoming spike higher on the NASDAQ by selling a PUT spread and using the proceeds to buy a CALL.
Unfortunately it hasn’t panned out.
The trade details went like this – sell the QQQ August 18th 144 PUT for $0.89 and buy the QQQ August 18th 140 PUT for $0.19, for a credit of $0.70, then use the funds to buy the QQQ September 1st 147 CALL for $0.67. Total credit on the trade was $0.03.
As it turned out, the 140 PUT expired worthless, the 144 PUT expired in-the-money and the 147 CALL still has until the end of the week to turn a profit.
As for the ITM PUT, we were obligated to buy the shares at 144, so we now own a board lot of QQQ with the shares trading at $142.41.
That gives us a paper loss of $159, and we’re recommending today that you eat it. We’ll make the cash back on upcoming trades, but right now it’s too complicated to predict short term market direction.
If the Qubes pop higher, we’ll pull in something on the open CALL. If not, so be it.
As mentioned above, we’re interested in trading the purveyors of war this week, if for no other reason than we always liked playing guns as a kid. Me and my old pal, Sean, once played a wicked good ‘Rat Patrol’ , if you remember that series.
Anyway, we’re focused on two of the largest aerospace/defense sector names because we see a performance gap between the two that we expect shortly to close.
Let’s start with high flying Boeing Inc. (NYSE:BA), a company that has achieved stellar returns over the last eight months after doing precisely nothing for better than three years.
Have a look –
Boeing stock was stuck in a range for 40 months, and then, this past January, broke skyward in a vector that was perfectly parabolic.
And now she has to cool down.
A look at the weekly RSI indicator (in green) shows that by late July we were several weeks into the stratospheric overbought, a reading that nearly always results in an extended sideways meander.
The daily chart, too, shows BA shares getting wildly over extended –
Boeing shares spent nearly three weeks in overbought territory after the stock gapped higher by nearly 10%. But without any major news on the horizon, the company’s single earnings beat will not be enough to maintain momentum.
We’ll have to see an appreciable cooling phase before the next bump higher.
Against Boeing, we’re going to play a slow and steady performer from the aerospace realm called Northrop Grumman (NYSE:NOC), makers of all manner of lasers, bombs and other deadly flying craft. She’s a stock we’ve played in the past to great success.
Have a look here –
The predictability of NOC stock is exactly what we’re after here: the perfect foil to BA’s blast and burst.
We’re going to take a relatively long view on the pair and bet on an NOC outperformance. You can use the stock if you wish – buy NOC (now at $270.29) and sell BA (now at $236.88) for a debit of roughly $34.50 per share.
Or follow us on an options pairing, the details of which now follow –- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]
Both options are roughly 10% out-of-the-money.
With kind regards,
Hugh L. O’Haynew