February 7, 2020

Attractive Trades to Take Advantage of CoronaVirus and Grounded Airlines

Midas Letter
Midas Letter
Attractive Trades to Take Advantage of CoronaVirus and Grounded Airlines

Future of Wealth Head Trader Lance Ippalito joins Midas Letter to discuss how traders can capitalize on current market conditions pricing in the effects of airlines being suspended in China, FAANG stocks reaction to the Coronavirus and earnings results. Lance is looking at names like Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX) – both company’s with massive short sellers. Traders can take full advantage of big short squeezes as capital flows from China into these large US stocks. Watch the full interview to hear about other opportunities in today’s market to profit from these current market themes.

[stock_chart width=100% symbol=FB:US,AMZN:US,AAPL:US,NFLX:US,GOOG:US,TSLA:US]


James West: Lance Ippolito is back from The Future of Money. Lance, welcome back.

Lance Ippolito: Hey, James, how are you?

James West: Lance, what are the opportunities today in The Future of Money?

Lance Ippolito: We are seeing a complete 180 from Friday. You know, we’ve had, with the Coronavirus, we’ve had the markets sell off. The DOW was down 600 points on Friday, and then today, you had Shanghai open up limit down about 9 percent, but you actually had the China ADR stocks – like a Baidu, Alibaba, JD – these stocks are raging higher today. Tesla is up $101 now; that I’m speaking of over 15.5 percent.

You have Google earnings after the close…the money, the big institutional money, is pouring in today. Just a complete change, and I think these FAANG stocks – your Google, your Netflix, we saw it with Amazon Thursday night as they reported earnings, the stock was up 200 points – you’re seeing big rotation into tech, and I think it’s going to continue. There’s nothing, nothing really slowing down this market. Even the whole Coronavirus taking over.

James West: Sure. So in the context of a global marketplace, and a connected marketplace, is it safe to say that large institutional pools are selling China and buying US tech, FAANG stocks in particular?

Lance Ippolito: I think you’re spot-on, right there with you.

James West: Okay, so this is interesting, because if you look at, technically, the trading of the FAANG stocks tend to fall – like, the RRSIs have been through the roof, the Bollinger Bands have been…like, it’s trading outside of the B-Bands, where normally, in a traditional market, you would be expecting them to fall back into the pattern. And that’s just not happening, because we’re actually seeing exponential growth of cash into the US market at the expense of the Chinese market, fuelled by coronavirus.

But I mean, Europe is looking weak, China is looking weak, Asia by extension. And so it looks to me like there must be one hell of a long trade options side in the US market.

Lance Ippolito: Well, yeah. You’re completely spot-on, and what I’m looking at, actually right now, is, these stocks like a Tesla, like a Netflix, that have massive short sellers – you know, we have Chanos with Tesla, Green Light Capital, David Einhorn, just came out ahead of Netflix earnings short Netflix – and these stocks are causing massive short squeezes.

So I’m actually looking at Netflix now that we speak, just because I do feel like Tesla is a little overextended, and I know – you know, it can have a crazy high RSI, and it will continue to move higher, that RSI, but the stock keeps going up. I’m looking, actually, at Netflix. It was trading around 340 on earnings. The stock actually went lower, about 2, 2.5, 3 percent. Now it’s bringing around 356, and up 3.33 percent today.

I like, even going out of the money on options, looking at about 30 to 45 days out, and looking at some of these Netflix 380 call options. So again, they’re out the money, but they’re cheap, and you get a couple 3 percent up days, and Netflix is going to be right there.

James West: Right. So the guys who were short these stocks, I mean, those are some big names who can probably afford to be short for quite a while. But nobody can afford to be short longer than the market can afford to be irrational. What are they banking on, just a technical cover? Or are they actually looking at a fundamental weakness from the over-bought state driven by this explosive growth in capital flowing into those names?

Lance Ippolito: Well, the rationale on Tesla was, Solar City was a fraud; Tesla is running out of money; they’re in debt, and they’re not producing. That has completely changed. Every analyst on the Street has upgraded Tesla over the past 30 days, and the stock is soaring. It went from 300 to now, 755. 

With Netflix, what’s actually insane about this name is, they’re burning through cash. The fundamentals, in my opinion, and from these large hedge fund managers, they’re not there. You know, they’re spending so much money on content, and subscribers, international subscribers, are actually going down. But, and this is huge, especially for Netflix, they continue to – even with bad earnings, even with bad fundamentals – they continue to move higher. And once these names get going, this massive short squeeze occurs, and it just really drives the prices higher.

You could call it, you know, with Netflix doing reverse splits, whatever you may, financial engineering, but they continue to move higher, and these shorts eventually have to throw in the towel. They have to cover, and when they do, that’s just another bullish sign for these big momentum stocks.

James West: Yeah, you bet. So is it safe to say that option side, this is the only game in town right now?

Lance Ippolito: No. Is it fun? Is it entertaining? You’re darn right it is. It’s a fun game. There is earnings approaching. When we saw Amazon report, we had Facebook actually report some pretty bad numbers, especially international. You do have opportunity in earnings; in fact, I was looking at Hartford Financial today. I know some big large tech names and retailers start to report earnings, like Capri Holdings, TPR, which was the old Coach, some of these luxury retailers. You have the cruise liners like Royal Caribbean reporting earnings.

There’s opportunities, because a lot of these names, especially with the situation in China, you know, the transports, the airliners, they’ve been all over with the whole coronavirus. There’s opportunities out there. Do I think they’re, you know, opportunities that are three to six months long? No. But there’s things in the options market that you can play that is short-dated, that is news, that actually offer favourable risk vs. reward if you want to be active.

James West: Sure. I noticed that, pertaining to the coronavirus stocks, as the new category has emerged to be called, Gilead came out with a statement suggesting that they were actively developing a vaccine and a treatment, and cautioned, though, that it may be up to a year, or at least 10 months, before this was ready for mass market deployment. That had a beneficial influence on the stock price of Gilead in the nearer term, but is that something where, you know, there’s longer-term opportunities in companies that are in the business of creating vaccines for situations like ebola and coronavirus?

Lance Ippolito: I think, and you brought up Gilead, which was a perfect example, I think a lot of these names, like Gilead, for example, had actually printed up to about 68.5 right at the open; now it’s about $2.00 off the highs. I think if you’re in these names, it’s sell the news. So you get that pop, you take your profits, and you move on. I don’t think it’s, you buy and hold them hoping they’re going to come, you know, with a cure that, you know, it could be months down the road. It’s just, if the money is there, why not take profits, put it in your pocket, and move on to the next opportunity?

James West: Sure. So, specifically any parting advice for trades that you think are particularly attractive at this point, Lance?

Lance Ippolito: I think you have the airliners that yes, with all the negative news and with all the stopping flights from China, I think if you actually want something that is cheap, that is beaten down, I actually think airliners and transports right around here, it’s not a bad thing to start bottom fishing, especially if you’re, let’s say, a buy and hold investor and you want to buy something that’s beat down. You’re having opportunities, and as a trader or as an investor, that’s all you can ask for.

James West: Sure. Now, when you say airline stocks, are you focusing on the US names only? Or, are you including, you know, things like British Airways, Qantas, etcetera?

Lance Ippolito: I tend to like the airline stocks that management and the fundamentals are there, and they’ve had a history of reporting greater than expected results. Specifically, like a UAL. They came out with good numbers; the stock is about $6 from the pre-earnings levels. And another name I like is Alaskan Airlines, ticker symbol ALK. Really good management there, and they kind of, they’re really the only airliner that goes in and out of Alaska, for the last time I checked. 

So, two names there that I find very solid. Names like an AAL, I just, the fundamentals aren’t there, and they’ve just had too many problems, especially with the whole Boeing situation over the past few weeks, as well.

James West: Sure. All right, Lance, that’s a great update as usual. Appreciate your contribution. We’ll come back to you next week. Thanks for joining me.

Lance Ippolito: Thank you, James.

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