It was yet another strong week for the market and countless stocks, many of which are breaking out to new highs. At some point the market may cool off, but for now at least, I’m not seeing any truly worrying signs. And in fact, the S&P 500 closed at a new record high as the index gained 1.44% on the week, while the Dow added 1.56%, and the Nasdaq rallied 1.63%.
The Stock – Robinhood (HOOD)
While some Bull Market stocks that have heavier real estate operations are still a bit wobbly, many others are thriving, and Robinhood remains our favorite of the group fundamentally because it has the most potential upside if big-picture sentiment (which remains mid-range at best) cranks ahead.
The firm is becoming a hub for more active traders of all sorts of instruments, and while it’s still somewhat limited on certain offerings (no preferred stocks, OTC securities, etc.), it’s attracting a hoard of new users that are trading stocks, crypto and options at a higher rate. To be fair, the firm itself is doing many things to attract these users—it’s made a bigger move into retirement accounts, and totals there are lifting off (820,000 accounts in Q2, up about 170% from a year ago), and its Gold offering ($50 or so a year) gives subscribers higher money market rates, trading tools and deposit matches (if they stick around for a few years), among other pluses, making those two million-ish members much stickier.
That’s helping, but it’s the environment that is the big driver: In the first half of 2024, Robinhood attracted $24.4 billion of deposits, up from $8.5 billion a year before, while assets under custody reached $140 billion (up 57%). That’s led to the great sales and earnings growth seen in the table below; impressively, Q2’s figures came despite a big dip in crypto trading revenue ($81 million vs. $126 million in Q1; the numbers for that can swing wildly). Interest-related income will fade some if the Fed keeps cutting but, of course, those rate cuts should juice other areas of the business. It’s probably not a long-term buy and hold, as when the market hits the skids, the stock can get hit very hard—but right now the wind is at the company’s back.
Technical Analysis
HOOD’s initial blastoff came in February of this year, with shares moving out to 20-plus-month highs after earnings and, following an April/May dip, moving to higher highs into the 25 range. The market’s summer correction, though, caused a wicked pullback in HOOD—shares plunged from 25 to 14 intraday (and 16.5 on a closing basis) in three weeks or so, but rebounded well immediately, and after some tightness in late September, HOOD has broken out on the upside, moving to new price and (importantly) relative performance highs. Stop – 22
The Covered Call Trade
Buy Robinhood (HOOD) Stock at 27, Sell to Open November 27 Strike Calls (exp. 11/15) for $2, or a Net Price of 25 or less
Static Return: $200 per covered call (8%)
Breakeven: 25
Covered Call Return (if assigned): $200 per covered call (8%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 25 or less. (In this case, 27 minus 2 = 25. Or another example is you could pay 27.10 for the stock and sell the call for 2.10, which also equals 25.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Rocket (RKT) | 20.55 | 18.2 | 16.4 | October 20 -- $1.80 | $0.10 |
| Samsara (IOT) | 46.9 | 50.5 | 38 | October 45 -- $3.70 | $5.50 |
| Doximity (DOCS) | 40.4 | 43.5 | 32.5 | October 40 -- $1.80 | $3.50 |
| Maplebear (CART) | 39.5 | 42.5 | 35 | October 40 -- $1.20 | $2.50 |
| United Airlines (UAL) | 55.8 | 64 | 48.5 | October 56 -- $2.60 | $8.00 |
| ON Holdings (ONON) | 51.9 | 49 | 43.5 | November 50 -- $4.92 | $3.00 |
The next Cabot Profit Booster issue will be published on October 22, 2024.
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