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As Oil Prices Test New Depths, Option Traders Make a Find in This Energy Name

Posted: 01 Apr 2020 04:30 AM PDT

Oil prices tested new lows on Monday as the supply and demand story continue to cause crude prices to weaken. While oil prices have hit new lows, energy stocks have been able to firm up a little as most names are trading over 20% higher from their recent lows. The difficult thing for investors is know which names will make it through the necessary cuts in production.

Suncor Energy Inc (SU) is an integrated energy company that primarily focuses on developing petroleum resource basins in Canada’s Athabasca oil sands; explores for, acquires, develops, produces, refines, transports, and markets crude oil in Canada and internationally. They announced last week that they will be cutting production and capex during the crisis as the industry braces for the biggest slowdown in energy production in 35 years.

That news hasn't dissuaded buyers of the stock as the price has shot higher the past couple days. On Tuesday, significant call buying interest came in as speculators look for significant short-term gains. Call volume came in over six times that of put volume and was over 3 times the average. When you look at where these orders were getting filled, over 40% was getting filled near the ask price or above versus 30% between the market and 27% at the bid or below. Nearly half of the volume was largely bought on the 3 APR 20 $16 call option. That was over 6,300 in volume against an open interest of 13 at anywhere from $0.26 to $0.80. That is a strong indication that the market is expecting the stock to finish the week around $17.50 or higher.

Action to Take: SU is a long opportunity with a near-term target at $22.

Speculators may want to consider the 15 MAY 20 $18 call option for around $0.75. That means the $18 call will be worth at least $4 by expiration if the stock closes at $22.

4 High Short Interest Stocks to Consider During the COVID-19 Outbreak

Posted: 01 Apr 2020 04:30 AM PDT

The measures being taken to slow the spread of the novel coronavirus have a good chance to fundamentally change the economy. Certainly, there is the potential for a severe recession, or worse, but the fear of social interaction isn't going to end when the surge in virus cases peak. As a result, it's important to consider companies that have a chance to gain market share in the "new economy."

In addition to underlying strategic and fundamental considerations, accounting for short interest can create bullish potential as shorts go to cover their shares. When a trader shorts a stock, they sell with the requirement to buy the shares back at some point to realize their profit or loss. Companies with greater than 20% of the float shorted would be considered high short interest companies.

The float represents the shares outstanding minus the shares that are restricted. The significance of the short interest is also weighed when compared to the amount of daily volume traded on a company. This reflects how easily the short shares can be repurchased without dramatically affecting the stock price. A short ratio greater than 5 would be considered relatively high.

The following four names have at least 20% of a company's float that is shorted as of March 13, 2020 and may stand to benefit as a new paradigm for the way we deliver services and products change following this pandemic.

Let's take a look at the list.

High Short Interest Stock #1: SmileDirectClub Inc (SDC)

SDC provides medical technology platform. The Company provides SmileCheck, which is a teledentistry platform for doctor monitoring and communication. The Company provides clear aligner therapy treatment through its teledentistry platform. Its aligner treatment addresses the orthodontics market.

With many dentist and orthodontist offices closing, it may allow a paradigm shift in how we consume dentistry and orthodontics. They were recently embraced by the American Association of Dental Boards  and is also joining the COVID-19 containment fray by producing face shields as well. SDC has 47% of its float shorted with a short ratio of 4.29 days.

High Short Interest Stock #2: Carvana Co (CVNA)

CVNA is an e-commerce platform for buying used cars. On the Company’s platform, consumers can research and identify a vehicle, inspect it using its proprietary 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle and schedule delivery or pick-up, all from their desktop or mobile devices. The Company’s transaction technologies and online platform transform a traditionally time-consuming process by allowing customers to secure financing, complete a purchase and schedule delivery online.

CVNA provides a "touchless," 100% online car buying experience that may be the way forward in delivering a low-cost alternative to current alternatives. They've also recently gotten a $2B commitment from Ally, a leading digital financial services company.

CVNA has 65% of its float shorted with a short ratio of 7.4 days.

High Short Interest Stock #3: Catasys, Inc (CATS)

CATS harnesses proprietary big data predictive analytics, artificial intelligence and telehealth, combined with human interaction, to deliver improved member health and validated outcomes and savings to health plans. Our mission is to help improve the health and save the lives of as many people as possible.

CATS technology seeks to automate the healthcare delivery data integration and organization through AI, which intends to drastically lower the time required to provide diagnosis. They're expanding the range of applications beyond behavioral treatment to potentially include cardiovascular disease, diabetes and pulmonary disease.

CATS has a 32% of its float shorted with a short ratio of 17.11 days.

High Short Interest Stock #4: 3D Systems Corporation (DDD)

DDD provides three-dimensional (3D) printing solutions, including 3D printers, print materials, software, on demand manufacturing services and digital design tools. Its precision healthcare capabilities include simulation, Virtual Surgical Planning (VSP), and printing of medical and dental devices and surgical guides and instruments. Its solutions support applications in a range of industries, including healthcare, aerospace, automotive and durable goods.

3D printing has made news of late as parts are being manufactured on demand. It appears the potential applications are wide ranging from ventilator parts, masks, swabs, and many other applications. With so much manufacturing having been outsourced to China, this may be the opportunity that 3D printing advocates have been waiting for.

DDD has 31% of its float shorted with a short ration of 12 days.

Insiders of this BDC are Gobbling Up Shares as They May Stand to Benefit from Stimulus

Posted: 01 Apr 2020 04:30 AM PDT

The insiders of Prospect Capital Corp (PSEC) have purchased over 29 million shares of their company since March 1. That makes them the largest purchasers of shares of any company between a $1B and $20B market cap.

PSEC is a leading provider of flexible private debt and equity capital to sponsor-owned and non-sponsor-owned middle market companies in the United States and Canada. PSEC is a publicly traded closed-end investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. PSEC is managed by Prospect Capital Management L.P.

BDC companies typically pay extraordinary dividends and PSEC is currently yielding over 16% following it sell-off since mid-February. Over the past month, 13 different transactions have purchased a total of over 29 million shares. Most of the transactions have been by the CEO and over 10% owner in the company, John Barry.

These types of companies may struggle for a little while longer, but the passage of the stimulus is likely to "stimulate" companies in this industry. The reason for this is that these companies assist small and mid-sized companies get access to programs passed for them in the stimulus bill.

PSEC has been stabilizing around the $4 support area and has seen significant upside and downside volume over the past month. The price is currently falling back toward that support and provides near term upside as well as significantly more potential as the positives of the stimulus likely play out in coming quarters.

Action to Take: PSEC has a near-term price target of $5 and longer-term potential near $7.

Those wanting to own the stock but have some protection to the downside, may want to consider a covered stock strategy. This is where the shares are purchased along with a put. This provides a guaranteed sale price for 100 shares of the stock for a period of time. The cost of the put will be paid for in all or in part through the dividend in coming quarters. The 21 AUG 20 $4 put can be bought with the stock for around $0.60. That gives the investor 143 days of protection and all the upside in the stock with a cost basis of $0.60 plus the purchase price.

Option Traders have Not Softened Their Near-Term Bullish Expectations for This Tech Giant

Posted: 31 Mar 2020 04:30 AM PDT

Microsoft Corp (MSFT) has seen the use of its cloud services increase substantially in areas that are maintaining a shelter in place order. In a statement issued on Saturday, the software company stated:

“We have seen a very significant spike in Teams usage and now have more than 44 million daily users,” the software giant said in a Saturday statement.

“Those users generated over 900 million meeting and calling minutes on Teams daily in a single week.”

This places MSFT in a strategic position of being able to capitalize on measures the government is taking to limit outside activities and interaction whether at work or play.

MSFT closed over 7% higher on Monday as investors are recognizing the near-term and long-term potential of MSFT. Some of the near-term potential is also being reflected in unusual option activity.

While the options on MSFT was a little more actively traded than normal, it wasn't overwhelming. The general characterization of the activity taking place is that it bullish, with a lot of call buying and put selling. The more interesting part of that activity was the amount of call option buying for in the 3 APR 20 $155 to $165 strike prices early in the day. The activity was representative of expectations for a sizeable move going into the end of the week.

While the implied volatility is still elevated, the movement these stocks are experiencing makes the options look relatively cheap. This puts option buyers in a good position to profit well if the price of the stock moves in line with the expected move.

Action to Take: The current expected move for this week is based on the average implied volatility of the 3 APR 20 options. Currently, the value is showing a one standard deviation of $9.50. That means that there is a 61.8% chance of the stock price of MSFT will finish in about a $10 range by the close on Friday.

Given the option activity today, it is expected that MSFT will have a bullish week with an upside target of $170. Speculators might consider selling the 3 APR 20 $155 put for around $2.60 or higher. That gives a max gain of $260 or 1.67% ROR by the end of the week if the stock closes at or above $155. Consider buying it back for $0.60 or less.

Despite Recent Upgrades, A 10% Owner of this Logistics Company has Just Sold 25% of Its Holdings

Posted: 31 Mar 2020 04:30 AM PDT

In January, XPO Logistics Inc (XPO) surged in price overnight by over 15% as it announced its plan to sell off one or more of its business units. That large gap ended up being within a few dollars of its eventual high near $100 that it reached in February.  The company recently announced that it is terminating that plan.

Since that original announcement, the stock has lost over 50% of its value before rallying last week. However, that momentum began to reverse on Friday and continued lower on Monday on lighter volume. The question that many investors have is whether this is the pause that refreshes, or whether it's an opportunity to go short.

If you look at the insider activity, it may suggest that this is an opportunity to short the stock. Over the past couple of weeks, Spruce House Partnership LLC, a 10% owner in XPO, has seen their holdings of XPO drop from 12.75M shares to just over 9.275M. That is a decrease of over 27%. Selling near the lows is a difficult decision to make for any investor. The fact that they're potentially selling near the bottom may be an indication of the current positioning of the company in the current climate.

Action to Take: XPO is a short opportunity with a target of $39.

For Speculators, a 17 APR 20 55/57.50 short call vertical can be sold for around $0.80. That provides a max gain of $80 or 47% ROR is the stock closes below $55 by expiration. Consider closing early if it can be bought back for $0.20 or less.

Here’s Your Quarantine List of 7 Stocks to Own

Posted: 31 Mar 2020 04:30 AM PDT

It' a difficult environment to analyze companies. Since most metrics are based on earnings and revenues, there is this likely scenario where both decline precipitously. As a result, investors are searching for companies that have the potential to expand earnings and revenue over the next month or two as the Lock-down continues nation wide at least until the end of April and beyond.

Here's 7 investment opportunities that play well in the current economic environment.

Quarantine stock #1:   Cardinal Health, Inc. (CAH)

CAH operates as an integrated healthcare services and products company in the United States and internationally. It provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, and physician offices.

CAH was upgraded a couple times in February and again on March 20 by Bank of America. CAH also appears to be well stocked when it comes to ventilators to care for patients.

Quarantine stock #2:  GSX Techedu Inc (GSX)

GSX a technology-driven education company, provides online K-12 large-class after-school tutoring services in the People’s Republic of China. It offers K-12 large-class after-school tutoring courses that cover various K-12 academic subjects, including mathematics, English, Chinese, physics, chemistry, biology, history, geography, and political science.

Not only is GSX well-positioned in an area that services the education needs of children remotely, it has been one of the better-performing stocks in the market and has outpaced its peers.

Quarantine stock #3:  Netflix, Inc. (NFLX)

NFLX provides subscription streaming entertainment service. It offers TV series, documentaries, and feature films across various genres and languages. The company provides members the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices.

While some cities won't allow you to do basic things like exercise outside, nobody is preventing you from watching the tv. They may be lowering the quality of picture, but NFLX has continued to see subscriber growth through the lockdown.

Quarantine stock #4: Chewy, Inc (CHWY)

CHWY provides pet food, pet products, pet medications, and other pet health products for dogs, cats, fish, birds, small pets, horses, and reptiles through its chewy.com retail Website, as well as its mobile applications. It offers approximately 45,000 products from 1,600 partner brands.

CHWY received numerous analyst upgrades on December through February ranging from outperform to buy. It also announced a partnership with GreaterGood.org to donate $1.7 million in supplies for the care of pets across the country.

Quarantine stock #5: Teledoc Health, Inc. (TDOC)

TDOC is a virtual healthcare service that covers various clinical conditions, including non-critical, episodic care, chronic, and complicated cases like cancer and congestive heart failure, as well as offers telehealth solutions, expert medical services, behavioral health solutions, guidance and support, and platform and program services. The company’s platform enables patients and providers to have an integrated smart user experience through mobile, Web, and phone based accessed points. It serves health employers, health plans, hospitals, health systems, and insurance and financial services companies.

TDOC is trading just shy of its 52-week high, but as the utilization of its services continue to expand through quarantines, it may create a paradigm shift toward visiting with your doctor online for basic services.

Quarantine stock #6: Norton LifeLock Inc. (NLOK)

NLOK provides cyber security products, services, and solutions worldwide. The company offers Norton security solutions as a subscription service providing protection for devices against malware, viruses, adware, and ransomware on various platforms; and LifeLock identity theft protection solution that provides identity monitoring, alerts, and restoration to its customers. It also provides Norton Secure VPN and other consumer security solutions, as well as Norton Wi-Fi Privacy VPN. The company serves enterprises, including business, government, and public-sector customers; small, medium, and large businesses; and individuals, households, and small businesses.

As workers transition to work from their home and children are being educated from home, the need for protection and privacy grows. NLOK is well-positioned in this climate.

Quarantine stock #7: Amazon, Inc (AMZN)

AMZN engages in the retail sale of consumer products and subscriptions in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS).

AMZN captures over 40% of all online spending through its website and is one of the premiere cloud services out there. They've seen a huge surge in spending on its platform, which may hurt margins. However, the positives outweigh any negatives for now.

The Insiders of This Healthcare Company Know When to Buy and Sell, and They’re Buying

Posted: 30 Mar 2020 04:30 AM PDT

National Health Investors Inc (NHI) is a real estate investment trust specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. NHI’s portfolio consists of independent, assisted and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals.

The share price for NHI was down as much as 66% since its peak on February 25, 2020. Over the past week, the stock has rallied back from a low of $31.37 to around $55. This is a significant amount of movement in such a short period of time but is typical when the sell-off was so dramatic.

There really hasn't been any news to drive it other than the stimulus and the Federal Reserve liquidity measures. The company raised its dividend recently by nearly 5% to a forward yield of around 8%.

One thing that can be pointed to is the insider buying that has occurred over the past month. Since March 12, three different insiders have bought stock totaling 33,622 shares between $36 and $60. There was also news that broke on Friday that the Chairman of the company bought nearly $1M in stock. Not only have they been buying at the right time, the CEO and CIO sold shares on February 24, 2020 before the significant drop in the share price. While many insiders timing isn't great, theirs appears to be pretty good.

Action to Take: NHI is a long opportunity with an $80 target in the coming weeks to months.

Option Traders Place Multiple Bearish Bets that this Stock has not Found a Bottom

Posted: 30 Mar 2020 04:30 AM PDT

Sea Limited (SE) is a Singapore company that operates mostly in Asia and through three segments: digital entertainment, e-commerce and digital financial services. The Company has developed an integrated platform consisting of digital entertainment focused on online games, e-commerce, and digital financial services focused on e-wallet services. The stock posted tremendous gains in 2019 as it finished the year 83% higher.

SE has been a company that has held up fairly well throughout the current sell-off, but finally capitulated on March 12 as it broke out of a double top price pattern. The stock quickly hit the projected move for the pattern before rallying higher this past week. While the rally was significant, it also occurred on lower volume.

As the pace of the advance stalled in recent days, option traders have begun to place some significant bearish trades that may see the stock near $30 or below in the coming weeks. On March 24, there were 13,000 contracts traded of the May 45/30 long put vertical. This strategy reaches its maximum gain if the close closes below $30 by expiration. On Friday, 6,200 puts April 30 puts were bought for a price between $0.14 to $0.30 a share. That means the stock would have to fall to around $29.70 to breakeven.

Action to Take: SE is a short opportunity with a $35 price target.

For speculators, the August $39 put can be bought for around $4.50 a share. If the stock reaches $30 by expiration, it will be worth $9 a share for a 100% ROR. Consider closing one-half the position if it can be sold for $9 before expiration.

5 Healthcare REITs to Buy Now as the US Now Leads the World in COVID-19 Cases

Posted: 30 Mar 2020 04:30 AM PDT

A real estate investment trust is a company that owns, operates or finances real estate. The corporate structure is a pass-through entity for tax purposes as investors pay taxes and not the company. One requirement of the REIT to keep this status is that they have to pass through 90% of the company's taxable income as dividends. This feature is attractive for investors seeking current income and it helps the REIT attract capital for investment in real estate projects or other investments.

Like stocks, REITs fall into different sectors of the economy, but are all classified as REITs. At different stages of the economy, some REITs will perform better than others. For example, you would imagine that retail commercial real estate REITs might be sweating it out right now, and healthcare REITs might be more secure.

Some considerations when evaluating a REIT are the dividend yield, the leverage of the company and the AFFO payout ratio. Similar to dividend paying stocks, it's important to consider a company's ability to pay the dividend from its cash flows. Adjusted funds from operations (AFFO) is the best measure for profitability or cash flow.

Let's look at five healthcare REITs and some of their metrics.

Healthcare REIT #1: The Geo Group Inc (GEO)

A couple days ago GEO was in the news as a subsidiary signed a five year deal with the U.S. Immigration and Customs Enforcement agency to help run their ISAP program. GEO currently pays a 16.7% dividend yield and has an AFFO payout ratio of 72%. This company is generating plenty of cash flow to pay the current dividend, but the company is more highly leveraged than the other companies on the list. This means that if borrowing cost go up, it will hurt profitability and they have higher fixed costs associated with the interest expense. The upside is for it to return to its February high near $18.

Healthcare REIT #2: Ventas, Inc (VTR)

VTR was recently upgraded by Raymond James from a Market Perform rating to a strong buy on March 25, 2020. While the upgrade didn't cause the stock to move significantly since the announcement, it is an indication of gaining interest. VTR pays an 11.4% dividend yield and has an AFFO payout ratio of 84%. This company is generating a reasonable amount of cash flow to pay its dividend and is carrying a below average amount of debt on its balance sheet. The near-term upside for this company is the 50% retracement of the downtrend since mid-February near $50.

Healthcare REIT #3: Omega Healthcare Investors Inc (OHI)

OHI announced a $200 million stock repurchase program that will take place over the next 12 months. Frequently, companies will return money to investors in the form of buybacks that will lift the share price versus increasing the dividend. Buybacks are generally considered more temporary and many companies are eliminating buybacks right now because of the cash crunch. OHI pays a 9.8% dividend yield and has an 86% AFFO payout ratio. They have a below average amount of debt as their leverage is less than average. The upside for this company is to run to prior resistance near $40.

Healthcare REIT #4: LTC Properties Inc (LTC)

Unlike OHI, LTC announced on March 25, 2020 that they are suspending their share repurchase plan. While generally considered a negative, it is a way for companies to hold onto their cash to pay dividends, invest in the company and other investments. The company currently pays a 7.8% dividend yield with an AFFO payout ratio of 70%. The payout ratio is among the lowest of the group and they have lower leverage than the other companies on this list as well. The near-term target is $40 and is based on the 61.8% retracement level of the downtrend from February.

Healthcare REIT #5: CareTrust REIT Inc (CTRE)

CTRE announced on March 12, 2020 that they were increasing their dividend from $0.225 to $0.25 per share. That's a 10% increase in the dividend for the year. CTRE currently pays a dividend of 6.2% and has the lowest AFFO payout ratio of 66% and is one of the lowest leveraged REITs out there. The combination of a high and growing yield, Low leverage and payout ratio makes this company the most attractive of the group. The near-term target for this company is $24, which is near the February high.

Is the One Week Honeymoon Over for Cruise Lines? Option Traders Seem to Think So

Posted: 27 Mar 2020 04:30 AM PDT

It's only been a couple of weeks since Norwegian Cruise Line Holdings (NCLH) and Royal Caribbean Cruises Ltd (RCL) announced that they were suspending all cruises from March 13 through mid-April. As the cases of COVID-19 continue to increase, one wonders whether that is the best-case scenario for these companies.

If there are uncertainties around the future viability and earnings of these companies, you wouldn't know it by looking at the performance of their share price over the past week as both stocks have more than doubled in price. That's the thing about massive declines, the harder they fall, the bigger the bounce. Some call it a "dead cat bounce." After a period of furious buying, the price typically retests the previous lows and often breaks to new lows. For some companies the path to higher earnings and profitability are easier to gauge, but for these companies, it is clear as mud. As the rally began to fizzle late Thursday, it is an early signal, technically, that the rally may be coming to an end.

On Thursday, there were over 4000 27 MAR 20 $15 puts bought for $0.45 to $0.75 with only one day to expiration. That may seem a little crazy, but these are gamma plays as the option moves from OTM to ITM, the delta explodes, and the option quickly moves close to dollar-for-dollar with the stock. While you may decide to take a different route, it's an indication of the sentiment.

Action to Take: This stock is a short opportunity with a $10 price target.

Speculators who want upside with defined risk may want to consider the 3 APR 20 16/15 long put vertical for about $0.50. This provides a 100% ROR if the stock closes below $15 at expiration on April 3.
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