Updated: Dec 31, 2020
The Hourglass Trader Weekly Newsletter
Welcome to the second installment of our weekly Trade Ideas and More newsletter. We’ve switched up the format a little bit so hopefully things go smoothly.
Last Week’s Performance
Another perfect week for us as our trade recommendations that expired last week went 3-0. That takes our trade suggestions up to 14-0 (!!!) this month. I know a lot of the investors in our group have had a great month so far and we’ll look to keep that hot streak going as we move into this week’s trade ideas. But first, let’s take a look at what the highest-returning options for this week are.
This Week’s Best Returns
This Week’s Trade Ideas
HYLN 12/31 16p
RoR: 2.89% | Probability of Max Profit: 66.69% | Downside Cushion: 9.1%
If you’ve followed along with us throughout this year, it’s probably no surprise to see this one at the top of the list. We feel that HYLN is a great value due to it’s combination of option premium and value at the current price level. This is also a great combination of both weekly return and downside cushion. Their warrant redemption period ends at the end of the month, so the defensive play (selling a further OTM put) is probably the best one here, as it’s over $1 away from last Thursday’s closing price of $17.10
APT 12/31 12p
RoR: 2.65% | Probability of Max Profit: 58.85% | Downside Cushion: 4.57%
This mask manufacturer seems to have leveled out since a covid-spike, but there is still some solid premium on the options. Take a look at the last few weeks:
The red line at $12 looks to be some decent short-term resistance, so putting the strike of the puts we sell right at that number makes these puts look like a great value. There is a decently wide bid/ask spread, so the actual return on what you can get for these may be closer to 2%, but the probability of max profit is based on the option price so mathematically it would also mean that you have a greater than 58.85% of max profit. Really like the value here.
VGAC 1/15 15 strike Covered Calls
Max Return: 28.3% | Prob. of Max Return: 19.62% | Downside Cushion: 4.54%
This is another low-ish risk, high reward play from a SPAC. This one is from a company rumored to merge with a few different futuristic targets. That alone should be enough to keep the option premium high as we move through this trade. We’ll use that premium to our advantage as we sell 1/15 15 strike covered calls. Those offer an incredible premium of $0.55 and give us some huge upside here. The downside? Let’s look at the chart:
The price floor, like many other SPAC’s, is at about $10. These calls put your basis down to $11.57. If that isn’t low enough for you, you can also opt to sell 12.5 strike covered calls which will bring your basis down to $11.25 but also limit your upside. Since the merger on this one is a little ways away, we like the upside the 15c give us. In a few weeks we’ll either have these called away for a huge gain or sell another set of calls to lower our basis even further.
IPOF 1/15 15 strike Covered Calls
Max Return: 25.8% | Prob. of Max Return: 17.24% | Downside Cushion: 3.03%
This is almost an identical setup for the last play. The price floor is right around $10 and it’s trading at almost an identical price as VGAC. This company is another SPAC but is one of the highest-funded acquisition companies out there on the market, led by successful investor Chamath Palihapitiya. No target company has been announced yet but as long as we can keep collecting premium month to month on calls, our basis should be under the price floor in no time. If the shares get called away on a spike, we’ll be looking great with a really solid max return in such a short period of time. From a value perspective, you really can’t go wrong with either play here. The name of the game is lowering that basis and these SPAC plays both provide ample call premium to do so.
Stocks from the Chat
So in addition to the trade ideas that I’ve presented above, we always ask members of our Discord chatroom to let us know what stocks they want to see analyzed. Here are those stocks along with some brief analysis and considerations. Want to participate in the discussion and suggest some stocks for next week’s report? Join our Chatroom.
GIK: This ticker is another SPAC that will be taking Lightning eMotors public via reverse merger. With the advent of the electric vehicle boom that we’ve seen in the market, this announcement caused some serious excitement with the stock. With a price floor of about $10, it spiked up to $16.40 before arriving at the Thursday closing price of $14.07. To say the price action has been unsteady would be underselling it. Take a look at the chart for yourself:
The volatility has created some great option premium, but I think that volatility will also create a better entry point at some point in the near future. I personally would stay away from this one and let it fall back down to the $12-13 level before making a play. If you think now is the time to strike though, I would recommend a 1/15 12.5p, which offers a 6.84% RoR and would give you a basis of $11.70 if assigned. That’s a really solid discount from the current price.
GIX: As is the theme with the newsletter this week, this one is another SPAC. It closed at $11.04 last Thursday, which is super close to the price floor of roughly $10. Fundamentally, the premiums that the calls offer make for a solid play, as selling 12.5 strike covered calls would knock your basis down to $10.49. That’s really solid, but we always want to remember that although option premium can get tempting, we want to be running these plays on stocks that we’re comfortable with holding long-term. Is that the case with GIX? When I looked into it, things started to look a little strange.
One interesting thing about this SPAC is that they’ll actually be merging two companies together: Cloudbreak and UpHealth. Here’s what the Gigcapital (GIX) website had to say about those: “GigCapital2 announced that it has entered into two separate definitive business combination agreements with each of UpHealth one of the largest national and international digital healthcare providers, and Cloudbreak, a leading unified telemedicine and video medical interpretation solutions provider”. Plain and simple, UpHealth is not one of the largest national healthcare providers and Cloudbreak is a company with 2 offices and allegedly $250k in revenues. There are so many stocks out there on the market that there’s no need to try to get cute with a play like this when the option premium looks good but the business combination is suspicious.
And that’s all we’ve got for this week. If you made it all the way to the end, thanks for sticking with us. One last important point is that the market will be CLOSED on Friday, so we’ve got another 4-day week. Our goal is to keep generating quality content and keep it FREE for everyone. In order to help us accomplish this goal, we ask that you consider a one-time or recurring donation to support us. We understand that everyone’s financial situation is different, so if you don’t have the means to do so, by no means should you feel any pressure to do so. The best ways you can help us outside of a donation are by helping us grow the newsletter and our chatroom. The links to do all of this are below. Thanks for reading and we hope you have a great week.