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Big Time Option Trade Placed on Retailer, Hedge or Bullish?

Posted: 03 Jun 2020 04:30 AM PDT

Macy's Inc (NYSE: M) is a company whose share price has struggled until recently. Year-to-date the price is down over 55% but in the past week is up nearly 30%. Last week, the price broke out of a symmetrical triangle that has been forming since its March low near $4. With companies that have such flawed fundamentals and in an environment that is difficult for brick and mortar retailers, what is the next move for Macy's?

The price behavior would suggest a continuation in last week's movement and Tuesday's advance would certainly seem to help confirm that. As of May 15, around 48% of the float is currently shorted and would indicate more of an upward bias in a short squeeze. However, the company is currently projecting a 1Q operating loss of $1.11 billion when it announces earnings on July 1.

Looking at the option market, there also appears to be uncertainty with today's activity. The call and put option activity were a little above average. The call activity saw an even split between trades at the bid, ask or between the market. The puts saw over two-thirds of the activity get filled between the market. While the overall numbers were innocuous, there were two 10,000 contract trades that filled in one print at nearly the same time on the 17 JUL 20 $7 call and $5 put. Because they were filled between the market, it doesn't lend itself to immediately knowing if the call was sold and put bought or vice versa.

Considering the high short interest, guidance for an abysmal 1Q, and the price pattern, it appears that the trade was likely a bullish. This entails buying the $7 call and selling the $5 put. This is a form of bullish synthetic.

Here are links to our last two unusual option activity reports.

Option Bulls Look to Pick up this Ag Stock at a Discount

Option Traders Taking a Closer Look at Consumer Cyclicals as the Sector Nears February High

Action to Take: M is a long opportunity with a target of $9, based on the symmetrical triangle pattern.

Option traders may want to consider buying the 20 NOV 20 $8 call for around $1.20. This would be a play on a bigger bullish move in the coming months and has time to wait out a potentially negative reaction to the earnings.  Consider closing half the position if it doubles.

The post Big Time Option Trade Placed on Retailer, Hedge or Bullish? appeared first on Trading Tips.

‘Long Shot’ COVID-19 Treatment Looks Less Likely Following 10% Owner Selling

Posted: 03 Jun 2020 04:30 AM PDT

French drug company Sanofi (NASDAQ: SNY) announced last week that they were planning to sell half of their 23.2 million share position in Regeneron Pharmaceuticals, Inc (NASDAQ: REGN). The investment has spanned 16 years and a number of collaborations between the companies. Some of the FDA-approved therapies are Kevzara, Praluent and Dupixent.

While the plan was to sell half the position, SNY sold nearly its entire stake. The 22.8 million share sale leaves only 400,000 shares currently owned. The sale amounted to $11.6 billion dollars.

The two companies have been working on testing their arthritis drug Kevzara as a treatment for COVID-19. The drug was supposed to enter phase three of the trial phase at the end of April, but the results appeared to be fairly mixed as the trial was amended to only allow a narrower subset of patients with severe patients after a failing to show a benefit.

It may be the desire of SNY to look elsewhere for an opportunity to capitalize financially on the COVID-19 pandemic. The money may be part of an acquisition plan. Either way, it doesn't necessarily bode well for REGN that it has a product in its pipeline that can treat COVID-19.

Here are links to the last two insider trading reports.

Buffett Increases His Stake as 10% Owner in this Mobile and Satellite Broadcaster

This is the Most-Sold Stock by Insiders Last Week

Action to Take: REGN broke out last week as they announced stock buyback plans. While the sale is maybe an indication of a lack of faith, it's not necessarily a short signal. REGN is a long opportunity with a $650 target.

The post 'Long Shot' COVID-19 Treatment Looks Less Likely Following 10% Owner Selling appeared first on Trading Tips.

4 Positive Cash Flow Cloud Companies for the Pandemic

Posted: 03 Jun 2020 04:30 AM PDT

There are so many things swirling around that are impacting the ability of businesses to function. From orders to limit going into the public because of COVID-19 to the current curfews because of the riots. All of these events are helping to extend the timeframe of people working from home. As we've seen so far, this is a fairly bullish opportunity for cloud infrastructure, software and security.

Therefore, identifying companies that aren't negatively impacted by the mobility of society is one thing, but identifying companies that benefit from a lack of mobility is another. This is what makes the cloud space so attractive right now and why it continues to be one of the hottest industries in the market.

When you get down to selecting a company to invest in, there are many companies that have relatively unproven business models. While it doesn't mean that they can't go up, it should be a consideration as you narrow down your list. Looking at earnings is certainly one approach, but many of these companies have extremely high stock-based compensation that are an expense for net income under GAAP accounting. If you were to strip out non-cash expenses like stock-based compensation, depreciation, amortization and others, you're now working your way toward the calculation for cash flow from operating activities (CFO).

Operating cash flow is an indication of how much money the company brings in from its regular business activities before accounting for long-term capital expenditures or investment revenue and expenses. In the end, a positive cash flow company is preferable than a negative cash flow company with positive GAAP earnings.

Here are four infrastructure, security and software cloud companies generating positive operating cash flow.

Cloud Stock #1: Workday Inc (NASDAQ: WDAY)

Workday provides enterprise cloud applications for finance and human resources. The company has generated positive CFO for eight consecutive years and has seen its cash flow increase every year. In their most recent quarterly report Aneel Bhusri, co-founder and CEO, said:

"The cloud is playing a critical role in today's climate, with organizations leaning on Workday to pivot – whether it's helping employees learn virtually, closing books remotely, or scenario planning to determine what path to take. In many of these situations, our customers are running essential businesses, which we are incredibly grateful for." said Aneel Bhusri, co-founder and CEO, Workday.

WDAY has a near-term price target of $220.

Cloud Stock #2: Zscaler Inc (NASDAQ: ZS)

Zscaler is a cloud-based security company that helps companies get real-time insights into security issues. The company has generating positive CFO for two consecutive years. In the highlights from the company's quarterly report, they discussed working from home and their Zscaler Private Access (ZPA) traffic:

"Supported Zscaler customers, allowing their employees to work from home to maintain business continuity throughout the COVID-19 pandemic. Since February, Zscaler Private Access (ZPA) traffic grew over 10x and the Zscaler Cloud Security Platform reached a new milestone of securing 100 billion transactions per day."

ZS has a near-term price target of $120.

Cloud Stock #3: Okta Inc (NASDAQ: OKTA)

Okta is an enterprise level identity management solutions company that helps companies secure their users and connect them to technology and applications. The company has generated positive CFO for two consecutive years. Todd McKinnon, Chief Executive Officer and co-founder, discussed the future of a remote workforce:

"This shift is enabled through our core technology, which allows secure access to any technology from anywhere. When this crisis is over, we don’t expect organizations to revert to their prior ways of working."

OKTA has a near-term price target $250.

Cloud Stock #4: CrowdStrike Holdings Inc (NASDAQ: CRWD)

CrowdStrike provides a cloud-delivered solution for endpoint protection. Their platform offers a wide range from products including antivirus, endpoint detections and response, vulnerability management and others. The company generated positive CFO from the first time in their most recent fiscal year. George Kurtz, co-founder and chief executive officer, discussed last year's performance:

"CrowdStrike delivered a record-setting fourth quarter to conclude an exceptional fiscal year. With ARR reaching $600 million, we continued to see broad strength in multiple areas of the business during the quarter, including 90% year-over-year subscription revenue growth, record net new ARR and an acceleration in net new customers."

CRWD has a near-term price target of $108.50.

The post 4 Positive Cash Flow Cloud Companies for the Pandemic appeared first on Trading Tips.

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