Any doubts surrounding the work-from-home secular theme were dispelled by the pandemic, as remote platforms are now more prevalent than ever, and it should stay that way—recent surveys point out that up to three quarters of companies anticipate remote work being part of their long-term strategy, and Harvard just today said it’s going fully online in the fall.
Cabot Profit Booster 131
The Cabot Profit Booster Portfolio continues to perform brilliantly, aided by a strong market, great stock picks by Cabot Top Ten Trader chief analyst Mike Cintolo, and healthy call premiums we are selling via covered calls. At some point we will run into a pothole, but until then we will keep capturing yields of 5%-20%.
One quick note, in terms of prices when I send a trade recommendation—because you likely have a life outside of my trade ideas and may be working, golfing, etc. I always give you room to get into the trade as I know it could be a couple of hours before you have the time to enter the trade.
With that in mind let’s say I am recommending stock XYZ which is trading at 10, and the call is worth $0.75.
Because I want to give you room to get into the trade I might say “Buy the Stock at 10.30 and Sell the Call for $0.50.” This gives you a $0.30 cushion to buy the stock and another $0.25 to sell the call. In essence, I’m making it very easy for you to beat the prices I am recommending.
With that in mind, when you send your orders you should try to buy the stock as low as possible, and sell the call for as high a price as possible. 95% of the time you should easily beat my prices ... though if you have to pay $0.05 - $0.10 more on that rare occasion, that is totally fine.
And lastly, my prices are determined by the prices of the stock and option one hour after my trade alert is sent.
Now this week’s idea …
The Stock – Upwork (UPWK)
Any doubts surrounding the work-from-home secular theme were dispelled by the pandemic, as remote platforms are now more prevalent than ever, and it should stay that way—recent surveys point out that up to three quarters of companies anticipate remote work being part of their long-term strategy, and Harvard just today said it’s going fully online in the fall.
Upwork, which runs an online talent pool where firms can hire skilled freelancers (similar to Fiverr, which we wrote up recently, but with a longer-term employment focus), was specifically created to fill this need. Its platform makes it easier for employers to collaborate with offsite workers in 180 countries, and its clients include 30% of Fortune 100 companies (including Microsoft and Nasdaq).
Upwork broke its own records during the U.S. shutdown by a significant margin in new client registrations and client posts as customers flocked to its platform. Underscoring the surge, Upwork’s revenue grew 21% in Q1 while its take-rate (how much it cleared on every hire) grew 14%, and management believes a 20%-plus annual revenue growth is achievable in the years ahead based on the secular work-from-home trend. The company also just announced a partnership with Citrix in a joint software launch designed to more efficiently manage on-demand talent. Both companies believe that “remote work is here to stay,” and that’s hard to argue with.
Technical Analysis
UPWK came public in early October 2018 (terrible timing for the stock, though good for the company); from the low 20s then, the stock sank steadily all the way to 5 at the March 2020 market low. But now it’s a different animal—shares exploded higher over a six-week stretch starting in early April, consolidated tightly in the 12 area for five weeks and resumed their advance the past two weeks. UPWK is thinly traded (~$40 million per day) and choppy, so aim to buy on weakness. Stop - 11.5
The Covered Call Trade
Buy Upwork (UPWK) Stock at 14.50, Sell to Open August 15 Strike Calls (exp. 8/21/2020) for $1.10, or a Net Price of 13.40 or less
Static Return: $110 per covered call (8.20%)
Breakeven: 13.40
Covered Call Return (if assigned): $160 per covered call (11.94%)
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 13.40 or less. (In this case 14.50 minus 1.10 = 13.40. Or another example is you could pay 14.30 for the stock and sell the call for 0.90, which also equals 13.40)
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
