In The Money with Fidelity Investments: JBLU, SMH & TWTR

by Dan January 13, 2021 2:53 pm • In The Money• Podcasts• Trade Ideas

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:

 

Here are my notes from today’s show:

Macro: When will equity investors care about rising interest rates? the recent bounce in yields is likely a reflection by investors that the economy will improve sooner than the Fed expects in 2021 and that their assistance that they will let rates stay near zero till 2023 and let inflation run hot will be out of their control.

The 10-year chart of the 10 Year U.S. Treasury Yield shows massive long term technical resistance at the 2012 and 2016 lows that many economists said at the time was a generational bottom:

 

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Trade Idea #1: Bullish JBLU

I suspect new rules and regs around Vaccine distribution will get some of the hardest-hit sectors from the Pandemic going in the weeks months to come… as for airlines I think domestically focused ones will be the first to come back…

 

Bullish Trade Idea: JBLU ($14.50) Buy 1 March 15 call for $1.15

Break-even on March expiration:

Profits above 16.15

Losses of up to 1.15 between 15 and 16.15 with max loss of 1.15 below 15

Rationale: risks 8% of the stock price with a breakeven up 11%

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Trade Idea #2: Bearish Semis – SMH

Good news priced in, valuations high, stocks are stretched…earnings and outlook will need to be fire emoji for the stocks to continue to move higher…play for a move back to $200 which looks like near-term support on the 1yr chart.

 

Bearish Trade Idea: SMH ($234) Buy Feb 230 – 200 put spread for $6

-Buy to open 1 Feb 230 put for $7.15

-Sell to open 1 Feb 200 put at $1.15

Break-even on Feb expiration:

Profits of up to 24 between 224 and 200, max profit of 24 at 200 or lower

Losses of up to 6 between 224 and 230 with max loss of 6 above 230

Rationale: this trade idea risk 2.5% of the etf price, breaks even down 4.5% and has a max gain of 10% of the etf price if the SMH is down 15% in a little more than a month.

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Lookback: Last week I detailed a near-term bearish trade idea in TWTR:

Now with the stock down $5 at $48, that Jan 22nd weekly puts are now worth $5.30, or 2.5x the original premium at risk… take the profit… or roll down and out….