Despite the market having some bumpiness, March was another great month for the Cabot Profit Booster portfolio as we closed four positions for the following profits:
Cabot Profit Booster 167
Despite the market having some bumpiness, March was another great month for the Cabot Profit Booster portfolio as we closed four positions for the following profits:
JCI - $235 per covered call – yield of 4.5%
SONO - $450 per covered call – yield of 17.7%
GS - $1,550 per covered call – yield of 5.8%
APHA - $220 per covered call – yield of 18.6%
With those positions closed, we now transition our attention to positions expiring in April and beyond. Which brings to me to this week’s idea …
The Stock – TripAdvisor (TRIP)
Why the Strength
Spring fever, coupled with pent-up travel and dining-out demand, are expected to contribute to a strong showing for the lodging industry this year. Restaurants, hotels and vacation resorts hope to attract customers after last year’s tourism collapse, and many of them are turning to travel platforms like TripAdvisor to help drive business their way.
TripAdvisor operates various travel-related websites and a mobile app, as well as offering online hotel reservations and bookings for transportation, lodging and restaurants. The company’s websites draw more than 400 million visitors each month and the firm has taken steps to monetize this by offering a subscription service.
The biggest news of late is its new TripAdvisor Plus, currently in beta, which costs $99 a year and provides deals from hotels and vacation services for customers. This was a big reason for the latest strength, as Plus inspired an upgrade from a big Wall Street firm, which predicted 10 million members and an additional $1 billion in revenue from the service over time.
Although revenue in Q4 was down 65% due to Covid-related restrictions, management indicated that pent-up travel demand is growing and expects travel could come “roaring back” in the second half of the year. And while analysts expect one more rocky quarter for revenue in Q1, the consensus sees the top line exploding 229% in Q2, followed by several more quarters of growth. Moreover, TripAdvisor achieved a target of $200 million in cost savings in 2020 and upped its liquidity position (to $400 million in cash).
All told, the firm appears fully prepared for a 2021 reopening, with the Plus offering providing a long-term growth catalyst.
Technical Analysis
TRIP went public in late 2011 and peaked at 111 in 2014 before commencing an extended slide to a lifetime low of 15 last March. Shares then spent several months tightening in a lateral trading range before finally breaking out in November on optimism over a vaccine and economic reopening. TRIP’s rebound has accelerated in the last two months on massive volume (most of the excitement surrounds the new Plus service), with shares reaching a two-year price high last week. Stop — 45
The Covered Call Trade
Buy Tripadvisor (TRIP) Stock at 53.5, Sell to Open April 55 Strike Calls (exp. 4/16/2021) for $2, or a Net Price of 51.5 or less
Static Return: $200 per covered call (3.88%)
Breakeven: 51.5
Covered Call Return (if assigned): $350 per covered call (6.79%)
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 51.5 or less. (In this case 53.5 minus 2 = 51.5. Or another example is you could pay 53 for the stock and sell the call for 1.50, which also equals 51.5)
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
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.
The next Cabot Profit Booster issue will be published on March 30, 2021.