Conifers 2020-01-10

The new year (2020) has barely started, and someone could have already made a 76x return in conifers. I introduced a new topic of conifers for this blog, borrowing from “The Dao of Capital” by Mark Spitznagel. The general idea is to track a certain unconventional class of investment that is shows underperformance the vast majority of the time, but occasionally has a chance to thrive and overtake traditional investment classes. The imagery is inspired by the survival strategy of conifer plants, which include Christmas trees, but in our case involve buying out-of-the-money (OTM) options. For today’s post, I am highlighting options that could have been purchased on January 2nd and sold on January 10th (year 2020). Let’s get into it:

Restructuring Energy Company

TickerPriceTypeExpirationStrikeDateAsk
APA25.36Call2020-01-1028.52020-01-020.05
TickerPriceTypeExpirationStrikeDateBid
APA32.38Call2020-01-1028.52020-01-103.85

Source: DeltaNeutral.com (HistoricalOptionData.com)

Apache Corporation (APA) is an energy company headquartered in Houston Texas, and a component of the S&P 500 Index. On Jan 9th, the company announced the decision to close its San Antonio facility later this year. The stock was trading below 26 prior to the announcement and jumped above 32 after the announcement. There was a call option on APA with strike price at 28.50, expiring at Jan 10th, available ask price of $0.05 on Jan 2nd. The same option on Jan 10th had available bid price of $3.85. Assuming active trading on both sizes of the trade (taking the ask, hitting the bid), the total return was a 76x net return.

Source: Yahoo Finance

Less Meat, Bests Rival

Beyond Meat (BYND) is a plant-based food company, announced on Jan 8th that McDonald’s Canada will increase its product testing of the company’s products. A rival plant-based food producer Impossible Foods also announced it will stop pursuing McDonald’s as a customer due to its inability to scale production. The stock was trading at 75.64 prior to the announcement and jumped above 96.07 after the announcement. There was a call option on BYND with strike price at 89, expiring at Jan 10th, available ask price of $0.12 on Jan 2nd. The same option on Jan 10th had available bid price of $7.00. Assuming active trading on both sizes of the trade (taking the ask, hitting the bid), the total return was a 57x net return.

TickerPriceTypeExpirationStrikeDateAsk
BYND75.64Call2020-01-10892020-01-020.12
TickerPriceTypeExpirationStrikeDateBid
BYND96.07Call2020-01-10892020-01-107.00

Source: DeltaNeutral.com (HistoricalOptionData.com)

Source: Yahoo Finance

Safe and Secure

CyberArk Software (CYBR) is a computer security services company based in Israel. Not too much news other than announcing year-end 2019 results will be published in February. The stock was trading at 118.76 on Jan 2nd, and jumped to 136.22 by Jan 10th. There was a call option struck at 128 expiring Jan 10th with a $0.15 asking price on Jan 2nd, and by Jan 10th the same option had a bid price of $7.70, implying a 50x return.

TickerPriceTypeExpirationStrikeDateAsk
CYBR118.76Call2020-01-101282020-01-020.15
TickerPriceTypeExpirationStrikeDateBid
CYBR136.22Call2020-01-101282020-01-107.70

Source: DeltaNeutral.com (HistoricalOptionData.com)

Source: Yahoo Finance

More Calls on S&P 500 Names

TickerTypeExpirationStrikeDateTakeTakeAskDateHitHitBidReturn
CRMCall2020-01-101752020-01-020.152020-01-105.1033x
NKTRCall2020-01-1023.52020-01-020.102020-01-102.8027x
NOCCall2020-01-103702020-01-020.152020-01-103.6023x
AKAMCall2020-01-10912020-01-020.152020-01-102.3614.7x
LMTCall2020-01-104102020-01-020.202020-01-103.1014.5x

Source: DeltaNeutral.com (HistoricalOptionData.com)

Conifer Put Options

TickerTypeExpirationStrikeDateTakeTakeAskDateHitHitBidReturn
SIXPut2020-01-17402020-01-020.102020-01-103.9038x
PTLAPut2020-01-17202020-01-020.202020-01-105.0024x
GMPut2020-01-1035.52020-01-020.062020-01-100.8312.8x

Source: DeltaNeutral.com (HistoricalOptionData.com)

Great Adventure Drop

Six Flags Entertainment (SIX) operates theme parks and water parks, headquartered in Great Prairie Texas. The company announced on Jan 10th that revenue in China will be lower than expected, and its Chinese partner has defaulted on its payment obligation to the company. The stock was trading at 45.01 on Jan 2nd, and dropped by 35.96 by Jan 10th. There was a put option expiring on Jan 17th struck at $40 with an asking price of $0.10 on Jan 2nd. The same option had a bid price of $3.90 on Jan 10th, representing a 38x return.

Source: Yahoo Finance

Drop in China Car Sales

General Motors (GM), a top US automaker headquartered in Detroit, Michigan is part of the S&P 500 index. On Jan 9th the company announced that 2019 car sales in China were down 15% compared to year ago period. The stock was trading at $37.38 on Jan 2nd, and closed at $34.65 on Jan 10th. A put option expiring on Jan 10th struck at 35.5 had asking price of $0.06 on Jan 2nd, and a bid price of $0.83 on Jan 10th, representing a 12.8x return.

Source: Yahoo Finance

Conifer Observations

Continuing to track big moves in OTM options market, both calls and puts. Especially interested in S&P 500 components in particular. Although each ticker has a large catalog of choices by strike prices and expiration dates, I only highlight one option per ticker for the blog. Have some new ideas to pursue for insight into this unusual asset class. Stay tuned.

Disclosure: This article is not a recommendation. Investors should make their own determination of whether or not to buy or sell stocks or options based upon their specific investment goals, and in consultation with their financial advisor.