Ho, ho, ho – the Dow is up 300 points this morning.
It's the same 1% we lost yesterday morning and only 200 points below Friday's close at 35,365 (so far). Does it count as a Santa Claus Rally if all we are doing is recovering lost ground? Santa's running a little late this year becase 15% of his elves caught Covid and there are supply chain issues and he had to raise wages so don't expect flashy toys this year – things are tough.
That's why, at PhilStockWorld, we learn how to make our own profits in any market conditions. We took advantage of yesterday's dip in our Live Member Chat room and added adult toy distributor, Best Buy (BBY) to our Long-Term portfolio by selling 5 BBY 2024 $70 puts for $10.25 ($5,125) thanks to a suggestion by Yodi, who noticed the sale at 12:42 which was, so far, the dead bottom.
At $95.77, BBY has a $23.35Bn market cap but even in 2020, they made $1.54Bn in profits, giving them a P/E of 15.16, which is fine for a retail store (and this was during a disaster). Last year they were back to $1.8Bn but BBY keeps a fiscal year that ends in October, so they are 3 months behind what traders are used to so Covid affected them heavily in their 2021 earnings as well. This year, which has just started for them, they expect to make $2.5Bn, which means they are trading at about 10x expected earnings – a very good deal.
We are able to turn that into an even better deal by selling the 2024 $70 puts for $10.25 – as that gives us a net $59.75 entry, which is another 37.6% below the current price. So our worst case is we buy 500 shares of BBY for net $57.75 and that's our break-even and anything above that is a profit – up to $5,125 – just for promising to buy 500 shares of BBY at a 37.6% discount. Aren't options fun?
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