OPTIONS: Freeport-McMoRan (new), Penn National Gaming (new)

OPTIONS: December 18, 2020

December 18, 2020

Please always note the dates of the articles in the options commentary stream that follows this article. We hope you find this format helpful. Performance is hypothetical and no trading is taking place.

Summary

Our first options idea for the month of December 2020 is call options on Freeport-McMoRan Inc (FCX) with a $26 strike price that expire February 19, 2021.
Our second options idea for the month of December 2020 is call options on Penn National Gaming Inc (PENN) with an $100 strike price that expire February 19, 2021.
The link to our latest additional options commentary, which was released December 7, can be found here. The article is also found below this one in the options commentary stream.

Freeport-McMoRan (FCX)

Our first options idea for the month of December 2020 is call options on Freeport-McMoRan Inc (FCX) with a $26 strike price that expire February 19, 2021. Shares of the copper and gold miner have surged upward since late March 2020 due to a recovery in copper prices and sustained strength in gold prices. The high end of our fair value estimate range for Freeport-McMoRan sits at $30 per share, indicating there is room for shares of FCX to run higher still, in our opinion. Let's dig into the details on this idea.

Freeport-McMoRan recently completed its Lone Star copper leach project in Arizona, and the firm is currently ramping up output at the development according to commentary provided within its third quarter of 2020 earnings press release. Additionally, Freeport-McMoRan is steadily increasing production at its massive Grasberg mining venture in Indonesia (which it owns a sizable economic stake in alongside the Indonesian government). Mining operations at the Grasberg minerals district have transitioned from surface to underground activities during the past few years (the venture completed final open pit mining activities in the fourth quarter of 2019). The Grasberg mining rights are owned by PT-FI which is ~49% owned by Freeport-McMoRan. However, through 2022, Freeport-McMoRan has an approximately 81% economic stake in PT-FI due to past agreements made before the Indonesia government acquired a sizable stake in the venture from Rio Tinto plc (RIO) back in 2018.

As underground production continues to ramp up at the Grasberg minerals district, this should provide a tailwind for Freeport-McMoRan’s copper and gold production while putting downward pressure on its unit costs going forward given the sheer size of the Grasberg mining venture, which primarily produces copper and gold. Freeport-McMoRan’s management team appears quite optimistic that this tailwind will have a powerful impact on the company’s financial performance in 2021+. Here is what the firm had to say in its latest earnings press release regarding its company-wide financial outlook: "With anticipated increases in copper and gold sales volumes and decreases in unit net cash costs, operating cash flows in 2021 are expected to be significantly higher than 2020 levels."

In March 2020, Freeport-McMoRan suspended its dividend to conserve cash in the face of the coronavirus (‘COVID-19’) pandemic. From the end of 2019 to the end of September 2020, the company’s net debt load (inclusive of short-term debt) dropped by $0.2 billion as management prioritized improving Freeport-McMoRan’s balance sheet (net debt, inclusive of short-term debt, stood at $7.6 billion at the end of September 2020). Looking ahead, Freeport-McMoRan intends to recommend to its Board of Directions that the firm should reinitiate its dividend in 2021, according to commentary included in its latest earnings press release. That is largely due to management’s improving confidence in Freeport-McMoRan’s financial trajectory, in our view.

Freeport-McMoRan’s GAAP operating income flipped from a ~$0.1 billion operating loss in the third quarter of 2019 to a ~$0.9 billion operating profit in the third quarter of 2020 as raw materials pricing improvements provided a powerful tailwind to its financial performance. Copper and other metals (such as iron ore) pricing has surged higher this year on the back of an industrial rebound. Expectations for rising electric vehicle (‘EVs’) sales, major investments in utility-scale renewable energy projects (from new power generation facilities to upgraded and expanded electricity transmission and distribution systems), and concerns over supply disruptions due to labor unrest in major copper producing regions have all played a role in bolstering copper prices of late.

Gold prices have moderated somewhat in recent months, though they remain well above levels seen in 2019 due to record monetary and fiscal stimulus measures enacted in major developed economies worldwide. As Freeport-McMoRan’s outlook is getting brighter and brighter, we see room for shares of FCX to continue marching higher over the coming weeks and months. Call options on FCX pass muster for one of our December options ideas.

Penn National Gaming (PENN)

Our second options idea for the month of December 2020 is call options on Penn National Gaming Inc (PENN) with an $100 strike price that expire February 19, 2021. The company owned, operated or had an economic interest in over 40 casinos and racetracks in the US at the end of 2019, along with a sizable online gambling operation. In February 2020, Penn National Gaming completed its acquisition of a 36% stake in Barstool Sports, a popular sports-oriented website, to bulk up its online sports gambling business. That included acquiring the exclusive rights to use the Barstool brand for Penn National Gaming’s online and retail sport betting offerings and iCasino products.

Though Penn National has a sizable traditional gaming presence (physical casinos and racetracks), it is the firm’s online ambitions that have caught the attention of investors, in our view. As Penn National Gaming continues to push into new markets, its growth runway will continue to get longer and longer. When the firm launched the Barstool Sportsbook mobile app in Pennsylvania this past September, after receiving regulatory approval from the Pennsylvania Gaming Control Board, the app was an instant success according to Penn National Gaming.

Sports betting, specifically online sports betting, is a secular growth market in the US with room for enormous upside after a Supreme Court ruling in 2018 opened the door for states to legalize sports betting should they want to do so. As the high end of our fair value estimate range for Penn National Gaming sits at ~$95 per share, well above where PENN is trading at as of this writing, we see room for additional capital appreciation upside. Penn National Gaming announced in December that it is expanding into Maryland to take advantage of the state recently legalizing sports betting, and moves like these will likely continue to be well-received by investors as the firm’s growth runway grows ever longer. Shares of PENN are supported by stellar technical strength seen of late, too

We're available for any questions, and we hope you continue to enjoy the additional options commentary. Happy Holidays to you and yours!

Kind regards,

The Valuentum Team

info@valuentum.com

Please note that with options trading, investors can lose their entire premium. Don't ever trade with money that you can't afford to lose. Valuentum is an investment research publisher and accepts no liability for how readers may choose to utilize the content. By continuing with your additional options commentary membership, you accept our Terms and Conditions. If you do not agree with the Terms and Conditions, you must stop using this service and cancel your additional options commentary membership.

OPTIONS: Closing More Winners (BKNG, DIS)

December 7, 2020

Dear members to our additional options commentary,

Please note that in late August we provided options-commentary members a new feature to add two more additional options ideas each month (4 per month, in all) to their existing options commentary membership of 2 per month. If you may have missed the offer, but would still like to add the two more options ideas per month (4 per month, in all), please upgrade here. You'll receive a confirmation registration email from us after completing the upgrade.

Prior to today's "closes," we covered the track record of our options idea generation in this email here, and we are again adding to the excellent track record. Today, we are closing the third and fourth ideas for the month of November -- 1) call options on Booking Holdings (BKNG) with a $2,400 strike price that expire January 15, 2021, and 2) call options on Disney (DIS) with a $150 strike price that expire on March 19, 2021.

As shown in the image above, based on data retrieved from YahooFinance, the bid/ask spread for the Booking Holdings' call option contracts at the time of highlight was $8.80/$11.60. The bid/ask spread is now $16.60/$19.70--good enough for a solid ~40% hypothetical "gain." The bid/ask spread for the Disney call option contracts at the time of highlight was $8.35/$8.70. The bid ask/spread is now $12.45/$12.55--good enough for another solid ~40% hypothetical "gain."

Note that these "closes" today follow two other recent (big) "winners" closed on November 30, namely call options on the First Trust Cloud Computing ETF (SKYY) with $85 strike price and expiration date of January 15, 2021, which was roughly a double, and call options on the iShares Russell 200 Value ETF (IWN) with $120 strike price and expiration date of May 21, 2021, which was roughly a three-bagger. As a financial publisher, please be aware that we are quoting hypothetical "performance."

There are many limitations to measuring hypothetical options-related "gains" and "losses," not the least of which are fast-changing bid/ask spread information and an inevitable timing lag from when we write and publish the note to when readers receive and read the email from us. Our attempt with providing members with our options idea track record is to be as transparent as possible in sharing this information with you. As with all features of Valuentum, we believe transparency is a key positive differentiator of our service. Note, our ideas are not personal recommendations, and not every options idea may be right for you.

Thus far, we have been keeping things simple. All of our options ideas thus far have been either long call or long put ideas, meaning that the risk of loss with these contracts is generally limited to the premium paid (the price of the contracts). Conversely, if an option investor were to sell/write an uncovered "naked" put option or uncovered "naked" call option, that investor could potentially become exposed to theoretically unlimited losses (with respect to selling/writing "naked" calls, in particular). Note, we have not highlighted ideas with these characteristics, and we reiterate that options trading can be very risky.

In the coming months, we plan to highlight more complicated ideas, but for now, we're keeping it simple as we 'rev' up the engines with this new options commentary feature. Simple has been working, too, as the number of option idea winners continue to add up. For new members, please be sure to read the OCC's Characteristics and Risks of Standardized Options here. We hope you continue to enjoy your membership to Valuentum's additional options commentary, and please don't forget to add two more options ideas per month to your membership here -- 4 in all (if you haven't already). Thank you for your continued interest. We're available for any questions.

Kind regards,

The Valuentum Team

info@valuentum.com

OPTIONS: Recap and New Ideas for November (third and fourth)

November 30, 2020

Please always note the dates of the articles in the options commentary stream that follows this article. We hope you find this format helpful. Thank you!

Summary

The win rates for the additional options commentary ideas have been excellent, especially considering that a large percentage of options contracts generally expire worthless.
Today, we are closing two of our previous ideas as winners, the third and fourth ideas highlighted for October -- 1) call options on the First Trust Cloud Computing ETF (SKYY) with $85 strike price and expiration date of January 15, 2021, and 2) call options on the iShares Russell 200 Value ETF (IWN) with $120 strike price and expiration date of May 21, 2021. The price of both options contracts have soared since their highlight date on October 26, 2020.
We are highlighting the third and fourth ideas for the month of November -- 1) call options on Booking Holdings (BKNG) with a $2,400 strike price that expire January 15, 2021, and 2) call options on Disney (DIS) with a $150 strike price that expire on March 19, 2021.

Dear members,

Trust you are well.

The table above summarizes the track record of our options ideas since inception of the additional options commentary feature of your Valuentum membership. Thus far, the win rates for the additional options commentary ideas have been fantastic, by most measures. The time and volatility element to any options idea makes the idea-selection process much more complicated than simply anticipating a pricing move directionally over a defined period of time, which is difficult to do in and of itself. Nonetheless, many options ideas have been successful--some very much so.

In many cases, prior closed winning ideas, including the two we are closing today, have had sizeable hypothetical estimated "gains," and across both call and put ideas. In a couple other cases, hypothetical estimated "losses" were minimized by closing the options idea prior to expiration, which we showcase as a sign of prudence with respect to our options idea generation. Just a rare few options ideas thus far have expired worthless, which we view very positively given the large percentage of options contracts that traditionally expire worthless. Today, we're adding to this good track record.

On October 26, 2020, we highlighted two options ideas -- 1) call options on the First Trust Cloud Computing ETF (SKYY) with $85 strike price and expiration date of January 15, 2021, and 2) call options on the iShares Russell 200 Value ETF (IWN) with $120 strike price and expiration date of May 21, 2021. We are closing both ideas today.

At the time of highlight for the SKYY contracts on October 26, 2020, the bid/ask spread was $3.20/$3.40. The bid/ask spread for these contracts is now $6.40/$6.70, implying a very nice hypothetical "gain" -- roughly a double. At the time of highlight for the IWN contracts on October 26, 2020, the bid/ask spread was $3.50/$3.90. The bid ask/spread for these contracts is now $11.30/$11.80, also implying a very nice hypothetical "gain" -- roughly a three-bagger. Data according to YahooFinance.

Now on to the third and fourth ideas for the month of November (also pictured in the image above). The third option idea for the month of November 2020 is call options on Booking Holdings Inc (BKNG) with a $2,400 strike price that expire January 15, 2021. Booking Holdings is the world’s leading provider of online travel and related services through portals such as Booking.com, KAYAK, priceline, agoda, Rentalcars.com, and OpenTable. Please note that while we think these options are appealing, they do have a high dollar value, and, as of this writing, cost $8.80/$11.60 based on their current bid/ask spread.

The coronavirus (‘COVID-19’) pandemic has weighed quite negatively on demand for travel, rental cars, restaurants, flights, and accommodations during the past few quarters. In turn, this created material headwinds for Booking Holdings; however, recent news regarding several promising COVID-19 vaccine candidates has significantly improved the company’s near- and long-term outlook.

Pfizer Inc (PFE) and BioNTech SE (BNTX) are working together on a potential COVID-19 vaccine, and initial results from their late stage (Phase 3) clinical trials were promising. On November 20, the duo announced that they had submitted their emergency use application to the US Food and Drug Administration (‘FDA’) to begin distributing the vaccine, and furthermore, that 50 million doses could be supplied by the end of 2020 followed by 1.3 billion doses in 2021 (though please note that each patient will likely receive two doses of the vaccine).

Initial results from Moderna Inc’s (MRNA) late stage clinical trials regarding its potential COVID-19 vaccine have also been promising, and the firm is likely to seek emergency authorization soon (if it has not already). Moderna noted it could supply 20 million doses of its potential COVID-19 vaccine by the end of 2020, depending on when it receives the necessary regulatory approvals. The partnership between AstraZeneca Plc (AZN) and the University of Oxford also reported promising initial late stage clinical trial results regarding their potential COVID-19 vaccine. AstraZeneca and Oxford aim to supply their potential COVID-19 vaccine to regions around the globe at a low cost.

Considering that three potential COVID-19 vaccine candidates are progressing towards regulatory approval, the chance that the pandemic will be brought under control sooner than expected seems to have increased considerably. However, please be aware that regulatory approval is not guaranteed, and broad global distribution of a vaccine or number of vaccines for COVID-19 will pose challenges.

At the end of September 2020, Booking Holdings had $11.2 billion in cash and cash equivalents on hand versus $1.0 billion in current convertible debt and $10.8 billion in long-term debt. Its net debt position is relatively modest, and its liquidity position is impressive. The company generated $0.4 billion in free cash flow during the first nine months of 2020, down significantly versus year-ago levels, though we appreciate that Booking Holdings appears able to generate free cash flow in almost any operating environment.

Looking ahead, shares of BKNG are supported by the company’s incredibly resilient cash flow profile (all things considered) and recent news regarding the potential for COVID-19 vaccine distribution activities to begin by the end of 2020. In our view, there is a good chance Booking Holdings’ recent technical strength will be sustained going forward. Call options look appealing to us.

The fourth options idea for the month of November 2020 is call options on The Walt Disney Company (DIS) with a $150 strike price that expire on March 19, 2021. As with Booking Holdings, Disney should be a major beneficiary of the world resuming “normal” activities with an eye towards its immense theme park and resort operations. Disney has had a lot of success of late growing the subscriber base of its various video streaming services (Disney+, EPSN+, various Hulu packages), though its financial performance has been weighed down by widespread weakness elsewhere. We covered Disney’s latest earnings report and impressive paid subscriber growth in this article here.

If distribution of a safe and viable COVID-19 vaccine begins in late-2020 or early-2021, that would significantly improve the outlook for Disney’s ‘Parks, Experiences and Products’ business operating segment. Furthermore, Disney’s ‘Studio Entertainment’ business operating segment--its movie business-- has also taken a hit due to many households opting to stay away from movie theaters during the pandemic (on top of movie theaters being forced to close in certain regions). Additionally, some theatrical releases were delayed or launched on its Disney+ streaming service instead (for free or for an additional fee, depending on the movie).

Should those business operating segments experience a turnaround while Disney’s video streaming business, included in its ‘Direct-to-Consumer & International’ business operating segment, is firing on all cylinders, Disney’s near-term growth outlook would be underpinned by several powerful catalysts. Disney decided to forgo another semi-annual dividend payment in November, though that has not stopped investors from flocking to the name on views of its potential capital appreciation upside. Looking ahead, there is a good chance Disney’s recent technical strength will be sustained, in our view. We like calls on the name as an idea.

We hope you continue to enjoy your membership to Valuentum's additional options commentary. We're available for any questions.

Kind regards,

The Valuentum Team

info@valuentum.com

OPTIONS: Beyond Meat (BYND)

Image Shown: Shares of Beyond Meat have surged over the past year, though selling pressures have started to build of late.

November 12, 2020

Please always note the dates of the articles in the options commentary stream that follows this article. We hope you find this format helpful. Thank you!

Dear members,

Our second options idea for the month of November 2020 is put options on Beyond Meat Inc (BYND) with a $120 strike price that expire January 15, 2021. Beyond Meat reported third quarter earnings for fiscal 2020 (period ended September 26, 2020) on November 9 that missed both consensus top- and bottom-line estimates by a mile as its ‘foodservice business’ continues to face significant headwinds due to the ongoing coronavirus (‘COVID-19’) pandemic. In the US, Beyond Meat’s foodservice business reported a 11% year-over-year decline in sales and internationally, its foodservice business reported a 65% year-over-year decline in sales last fiscal quarter.

Quick service restaurants (‘QSRs’) represent about one third of Beyond Meat’s foodservice sales according to recent management commentary, and the remaining two thirds is represented by sales to a wide variety of customers including bars, lodging establishments, and independent restaurants, the kind of entities that have really been hit hard by the pandemic. Pressures on this front will likely continue until global health authorities bring the pandemic under control. Renewed lockdowns in Europe and the potential for renewed lockdowns in the US are likely going to continue representing major hurdles for Beyond Meat in the near term. Please note that Beyond Meat recently bulked up its manufacturing capacity in Europe, in part by acquiring its first manufacturing facility in the region.

Strength at the company’s ‘retail’ segment in both the US and internationally helped grow Beyond Meat’s GAAP revenues by a little under 3% last fiscal quarter. However, for a firm whose stock price has roughly doubled over the past year, that is not strong enough fundamental performance to justify such a sharp increase in its equity valuation in such a short period of time, in our view. Though typically only ~25% of the intrinsic value of an equity comes from its forecasted discounted free cash flows expected to be generated in the year 1 – year 5 period, short-term headwinds combined with weak technicals can lead to significant share price declines in the near term. We see selling pressures continuing to build at shares of Beyond Meat as it attempts to navigate the COVID-19 pandemic.

We're available for any questions.

Kind regards,

The Valuentum Team

info@valuentum.com

OPTIONS: Solar Edge Tech (SEDG)

Image Shown: Shares of SolarEdge Technologies Inc rallied ahead of its latest earnings report, before selling off after the report in large part because the firm’s fourth quarter guidance underwhelmed lofty investor expectations. After the US election, shares of SolarEdge began recovering some lost ground, but in our view, we see significant hurdles ahead.

By Callum Turcan

November 10, 2020

Please always note the dates of the articles in the options commentary stream that follows this article. We hope you find this format helpful. Thank you!

Dear members,

Our first options idea for the month of November 2020 is put options on SolarEdge Technologies Inc (SEDG) with a $210 strike price that expire January 15, 2021. These options look attractive, but they do cost a pretty penny at ~$1,250/$1,310 per contract based on the bid/ask spread at the time of this writing.

For reference, the company operates in the photovoltaic (‘PV’) solar power space by offering a “DC optimized inverter solution” that seeks to “[maximize] power generation while lowering the cost of energy produced by the PV system, for improved return on investment” according to the company’s 2019 Annual Report. SolarEdge has other smart energy solutions as well, and the firm is in the process of launching new offerings though those activities have hit hurdles recently.

SolarEdge reported earnings for the third quarter of 2020 on November 2 that saw its GAAP revenues decline by 18% year-over-year as its GAAP operating income fell by 54% year-over-year. Additionally, SolarEdge’s fourth quarter outlook underwhelmed. Back in the third quarter of 2019, SolarEdge reported $411 million in GAAP revenues. Management is guiding for SolarEdge to generate $345 million - $365 million in revenues during the fourth quarter of 2020, indicating its revenues are expected to continue facing significant headwinds going forward. During SolarEdge’s second quarter of 2020 earnings call, management noted that the coronavirus (‘COVID-19’) pandemic had negatively impacted SolarEdge’s revenues, and those headwinds carried on into the third quarter and apparently will linger on into the fourth quarter (if not longer).

Furthermore, the ongoing pandemic has negatively impacted the launch of SolarEdge’s new offerings. During SolarEdge’s third quarter of 2020 earnings call, management noted that “the global pandemic and associated travel restrictions have impacted our certification and production target dates” and that these factors “will delay the release of our residential battery by several months.” Battery shipment activities are likely to start in early-2021 according to management, instead of this year.

Looking ahead, though it appears that Democrats have retaken control of the White House (legal challenges are ongoing, however), there is a good chance that the 117^th US Congress (the next meeting of Congress) may be split. Two senate races in Georgia are heading to a run-off election to held be on January 5, 2020, a vote that will likely determine which party will control the US Congress (or if it will be a split Congress). It is far from certain that the type of federal incentive packages SolarEdge would benefit from would be able to pass the 117^th US Congress and get signed into law.

The large increase in SolarEdge’s stock price in 2020 appears overdone and its near-term outlook is bleak. Shares of SEDG could face significant selling pressure over the coming months.

We're available for any questions.

Kind regards,

The Valuentum Team

info@valuentum.com

OPTIONS: INO puts (follow up)

Image Shown: Shares of Inovio Pharmaceuticals Inc surged higher during the first half of this year, largely due to investors pricing in expectations that this company’s COVID-19 vaccine candidate could prove to be successful. However, shares of Inovio began to sell off in the Summer of 2020 as other companies jumped into the race for a COVID-19 vaccine. After the US FDA suspended clinical trials in late-September, the company’s near- and medium-term outlook turned dour. Very recently, Pfizer Inc and BioNTech SE announced favorable interim data from their Phase 3 clinical trial covering their COVID-19 vaccine candidate, which further pressures Inovio’s near-term outlook. That said, we're running out of time with this option idea, and unfortunately we think it is prudent to close it in favor of future considerations.

November 10, 2020

Please always note the dates of the articles in the options commentary stream that follows this article. We hope you find this format helpful. Thank you!

Dear members,

Today, November 10, we are closing out one of our October 2020 options ideas, and that is the Inovio Pharmaceuticals Inc (INO) put options idea with a $10 strike price that expire on November 20, 2020. Shares are popping today, and there's just not enough time left, in our view, for this one to work out as planned, unfortunately.

If you recall, shares of Inovio Pharmaceuticals surged higher this year due to optimism over its ability to potentially discover a safe and viable vaccine for the coronavirus (‘COVID-19’), though clinical trials were suspended by the US Food and Drug Administration (‘FDA’) back in late-September. When Inovio reported third quarter earnings for 2020 after the market closed on November 9, the company noted it had responded to questions from the FDA and expected to hear back from the regulator later this month.

Beyond its COVID-19 vaccine candidate, Inovio has various potential treatments in different clinical trial stages, though some of those clinical trials have been delayed by the pandemic. In our view, Inovio’s near-term outlook remains dire as it appears Pfizer Inc (PFE) and BioNTech SE (BNTX) are getting a lot closer to beating Inovio in the race to discover a safe and viable COVID-19 vaccine.

On November 9, Pfizer and BioNTech announced interim data from a Phase 3 clinical trial concerning their COVID-19 vaccine candidate. In the press release Pfizer noted that its COVID-19 “vaccine candidate was found to be more than 90% effective in preventing COVID-19 in participants without evidence of prior SARS-CoV-2 infection in the first interim efficacy analysis.” Though additional observation and data is required from this study before the venture can secure regulatory approval, we applaud Pfizer and BioNTech for their efforts.

Though this options idea didn't work out as anticipated, we still believe that "a return to $5 per share might very well be in the cards." The INO put option idea still retains meaningful value, however, despite the rather large share price move November 10. Nonetheless, we believe it prudent to close the idea at this time in favor of future ideas, but we may look to consider put options on INO in the future once its rally loses momentum.

We're available for any questions.

Kind regards,

The Valuentum Team

info@valuentum.com

OPTIONS: Commentary Archives

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