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Unusual Options Activity: JD.Com (JD)

Posted: 01 Nov 2019 03:00 AM PDT

At-the-money put buying suggests drop

Over 6,050 contracts traded on the November 15th, 2019 $30.50 put option on JD.com (JD). That's a 17-fold surge in volume against the prior open interest of 354 contracts.

The option has 14 days left before expiration, and shares of JD are at $31.24, so they'd still need to drop for the option to close in-the-money. Adding in the $0.80 option premium, and traders are betting on a drop under $30.

The Chinese e-commerce giant often has some swings up and down, and may have just started a short-term pullback based on the latest charts. If that's the case, then the trade, while short-term, could possibly provide a trader with a 25-50 percent return in the next few weeks—not too bad for an options trade.

Action to take: We like this short-term trade. At the very least, it's a short-term bet on Chinese stocks giving up some of their gains as the much-promised macroeconomic event of a trade war resolution remains up in the air.

Longer-term, shares have run up a bit in the past year despite their volatility, with a 35 percent jump. With shares trading at a high valuation, especially considering the company barely eked out a profit last year and has an anemic 1.2 percent profit margin, we see no reason to make an investment either way here—just jump on the option trade and try to grab a quick profit on the short side.

Two Ways Baseball Can Show You How to Improve Your Investment Process

Posted: 01 Nov 2019 03:00 AM PDT

The best players focus on process to improve their performance.

Investing can be a lot like a game of baseball. There are moments of incredible excitement, often interspersed between many calm, even boring moments.

Over an investment lifetime, a trader can amass a great highlight reel of their best trades. But, while baseball fans see it this way, professional players actually out there on the field see it differently. For them, it's their job.

And as such, most players have a process that they follow to ensure their success. Investors would be wise to learn to think the same way. By turning a series of seemingly-unrelated trades and investments into part of a broader process, you can make mistakes, but learn how to minimize them in the future, and set yourself up for the trades that have the best prospect of making you money. Let's look at each in turn.

Process Point #1: Swing for Your Best Ideas

Some of the greatest baseball players in history have barely managed to get a batting average over .350. In other words, they've managed to hit the ball just 35 percent of the time. (Ty Cobb made .366 over his entire career.)

Think about this another way: These players have failed over 65percent of the time. That's a discouraging thing to think about, the idea that two-thirds of the time you fail at something… and you're still one of the greatest!

However, the pros don't see it that way. Ted Williams came up with the idea of breaking down his field of vision into a series of boxes. In some areas, he knew he could hit the ball. In others, he didn't. He would only focus on getting the best opportunities, otherwise he'd stand pat and let the ball go past him. That's how he managed to get a .406 average in 1941 and become the last player to ever bat .400.

There's a lot to unpack here for investors. After all, investing is about managing risks, and the markets can be quite risky. But by letting a lot of investment balls pass by without taking a swing with our capital, we can avoid some of the more "out-there" ideas that grip the markets from time to time.

One successful investor may take this to heart by focusing laser-like on just a handful of stocks. Marketers have often spoken in-depth about tools from companies like Facebook (FB) and Google (GOOG) that show that they likely know more about how the company is doing from a glance at the company's finances.

By focusing on areas of your own personal knowledge and strength, you'll improve your process and get a higher win rate in your overall portfolio. And unlike baseball, your win rate can end up a lot higher than just 40 percent of the time.

Process Point #2: Make Mistakes, But Learn From Them

When you do have a win, it can continue growing wealth for you indefinitely. Likewise, when you have the inevitable loss, you're better off treating it the way a baseball player would after getting a strike. Another ball is coming, and in the stock market the opportunities never stop.

It's hard for investors to make mistakes. We tend to take things personally. But just as baseball players may need to play to stadiums packed full of fans for the other team, it's important to set aside emotions and think about what really matters. Distractions can only hinder—never help—the investment process.

While we're already trying to minimize losses, the fact is that we can still learn from them. What went wrong specifically?

Did you buy a company on the expectation of a hot new product that fizzled? The lesson might be to just invest in a company with established products with a long service life. Or it might be to make an options trade where you can get the upside if it materializes, but minimize your downside if it doesn't.

Did you buy a growth company right before the market rotated into value names instead? Maybe it's best to look at a company's past performance and some technical indicators to see if it's been going up too much, too quickly lately.

Mistakes are an inevitable part of investing. But it's how we handle them that show our true mettle. If we focus on minimizing our mistakes, we shouldn't have that many. But if we also learn from them, we can minimize future ones even further, leaving us with an investment process that truly narrows down the best prospective investments.

Insider Activity: Tile Shop Holdings (TTS)

Posted: 01 Nov 2019 03:00 AM PDT

Director and major holder ups stake.

Peter Kamin, a director and major holder with over 10 percent of shares in Tile Shop Holdings (TTS), recently bought another 426,295 shares. This increased his stake by over 7.7 percent, and came to a total just over $750,000.

Insiders have been net buyers in the past year, largely by Karmin and another director that also has a stake over 10 percent. All told, insiders own just under 80 percent of shares.

Tile Shop Holdings, a retail outlet for natural stone and man-made tiles with over 141 stores in 31 states, has seen shares decline by nearly 80 percent in the past year. That level of drop is far in excess of the company's operational performance, which has shown a mere 4 percent revenue decline in the past year.

Action to take: This looks like an interesting turnaround opportunity. With shares trading around $1.65, it wouldn't take a big move for a market-beating return. And with the company near profitability and with insiders buying, such a move could be in the cards for this specialty retailer. The company is also maintaining a $0.20 annual dividend, which works out to nearly 6 percent at current prices. Shares look like an interesting buy up to $2.00, given the retail strength we’ve seen lately.

While there are some options that trade, none go out past May and are somewhat limited. A better option would be to treat shares as options, given their low price and upside potential from here—without the danger of expiration to worry about.
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