Rolling With The Market Rotation For A 236% Gain

An Alternate Approach 

In my last post (“Not In This Market“), I described an approach that didn’t work in this market, placing an bullish trade on Super Micro Computer, Inc. (NASDAQ:SMCI) when it looked oversold on a Relative Strength Index, and underpriced on a PEG basis. 

I described an alternate approach there as well: 

A Trade Using That Approach (Mostly)

My subscribers and I had a successful exit on Thursday, and looking back at our entry into that trade, it met three out of four of the bullets in that risk-off approach.

The company was PetIQ, Inc. (NASDAQ:PETQ), and here’s what I wrote about it in that post last month: 

As you can see there, this met three of the criteria in the alternate approach I sketched out in yesterday’s post: 

1. Rather than rely on RSI, we looked for technical consolidation (the Set-Up Rating is a measure of technical consolidation. 
2. Rather than rely on PEG, we used Chartmill’s Valuation Rating, which takes into account a number of valuation metrics in addition to PEG. 
3. And rather than use short-dated options, we used options expiring in January for this one. 

The one criteria we didn’t meet above is that we didn’t wait for earnings to place this trade–we placed it about a week before earnings. 

Our PetIQ Trade

Our trade was buying the $22.50 strike calls on PETQ at $2.50. 

PETQ shares spiked about 50% yesterday, on news that it would be taken private at $31 per share. We sold our calls for $8.40 today (Thursday), for a profit of 236%. 

Granted, I had no idea the company would be taken private, but often if you find good entries on well-run companies, good things happen. 

Trying This Approach Again 

Running this same screen again today yields no names, if you limit it to small caps. However, if you take away the market cap restriction, five names show up. We may place a bullish bet on one of those five names on our next down day. 

In the meantime, we took advantage of today’s up day to place two bearish bets, one on a weak regional bank, and another on an Internet company nearing the end of its IPO lockup period. 

If you’d like a heads up when we place our next trade, you can subscribe to our trading Substack/occasional email list below. 

And if you want to take advantage of the next rally to hedge, you can download our hedging app here.

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