In The Money with Fidelity Investments – Nov 5, 2020: SPY, XRT, LYFT, SPOT

by Dan November 5, 2020 3:51 pm • InTheMoney• RR Podcast

Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:

 

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Macro:

Expectations into the election were for a Biden WH and Senate Flip. That meant big Fiscal Stimulus, Infrastructure spending, and better Pandemic management would serve as an accelerant for economic recovery, overpowering higher corporate tax rates and income/cap gains taxes.

Wake up today to the likelihood that we have a split Govt which means no new tax hikes and lesser stimulus, which relies more on easier monetary policy. Stocks screamed and rates got hit.

Contested Election by trump could cause the sort of uncertainty that could undo some recent gains.

1yr SPX Chart

 

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Trade Idea #1: XRT, S&P Retail etf…Retail Could disappoint this Holiday Season without new Fiscal Stimulus, heavy promotion and increased Covid and shipping costs. 

Bearish Trade Idea: XRT ($53.50) Buy Dec 53 – 47 put spread for 1.50

-Buy to open 1 Dec 53 put for $2

-Sell to open 1 Dec 47 put at 50 cents

Break-even on Dec expiration:

Profits of up to 4.50 between 51.50 and 47 with max gain of 4.50 at 47 or lower

Losses of up to 1.50 between 51.50 and 53 with. max loss of 1.50 at 53 or higher.

Rationale: this trade idea breaks-even down 4%, has a max gain of 8.5% of the etf price, or 3x the premium at risk if the XRT is down 12% in a little more than a month and half.

XRT 1yr chart

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Trade Idea #2: LYFT, win with Ballot Initiative in CA resulted in big Lift for the stock… more to come into the new year as economy reopens…

Bullish Trade Idea: LYFT ($29.19) Buy Jan 30 – 42.50 call spread for $2.50

-Buy to open 1 Jan 30 call for $2.80

-Sell to open 1 Jan 42.50 call at 30 cents

Break-even on Jan expiration:

Profits of up to 10 between 32.50 and 42.50 with max gain of 10 above 42.50

Loses of up to 2.50 between 30 and 32.50 with max loss of 2.50 below 30

Rationale: this trade idea risks 8.5% of the stock price, breakeven up 11% and offers a max gain potential of 35% if the stock is up 45% in next three months…. stock rallied from last week’s lows to yesterday’s highs 50%, this stock is down 32% on the year and down 46% from 52-week highs.

 

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Lookback: On Oct 21st I detailed a yield enhancement strategy for long holders of SPOT

SPOT ($266) vs 100 shares long sell 1 Dec 300 call at 11.50

The stock went up to $285 then got crushed post-earnings.

The Dec 300 call that could have been sold at $11.50 when the stock was 266 is now worth 1.50 with the stock at $239. It makes sense to buy to cover.

This strategy helped mitigate $10 of the $26 loss over the last two weeks