BY BILL GRIFFO
September 23, 2023
Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
As an investor, it is hard to buy stock in a company that is not even confident where they are going.
Penn failed miserably after announcing a long-term, exclusive agreement for online sports betting in the US with ESPN. The stock initially rallied 20% on the deal but then fell straight down to new lows.
It continues to trade poorly but the technicals are improving and this may end up providing an excellent low-risk/high-reward trade.
Check it out below …
The Positives – Penn is trading at a 20% discount to Morningstar’s fair value price … They achieved revenues of $1.6 billion, which was up 3% YoY.
The ESPN deal comes with important financial perks … $1.5bn in cash payments and approximately $500 million in warrants. They have also divested 100% of its common stock in Barstool Sports.
PENN has also outlined an estimated target of long-term EBITDA potential ranging from $500 million to $1 billion.
Lastly, the technicals are shifting to a positive as you can see below a positive RSI reversal pattern, which has already created a series of positive divergences.
The Negatives – The complete absence regarding PENN’s outlook for 2023 is a big negative for investors. The company had guided for an EBITDA range of $1.875 billion to $2.0 billion for the year, but now there is no guidance available, raising questions about the company’s future prospects.
What’s the Trade
I am looking for one more push down in Penn to around the $22 level and maybe $21 … From there I would happily sell a call credit spread and depending on who it is trading would use the credit to buy a call spread also.
I am looking at selling an Oct20 21/18 put credit spread, which is currently trading at $.34 but if Penn can test the low one more time you can probably get closer to .45 to .50.
As you can see above Nov. – Dec. is a very positive season for Penn and if I collect on the credit spread I would finance either a Nov/Dec calendar spread or a simple call spread.
Join Mark, AG, Licia, Frank, and me on Monday for a hot debate and a trade that we agree on.
Live and trade with passion, my friend,
Griff
Bill Griffo
Head Income Trader
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CAPITOL GAINS: SMR Aug16 7 call closed for a 150% gain
DELTA STRIKE: VLY Mar15 8 puts closed for a 88% gain
PFE May17 26 calls closed for a 66% win
OP MENTORING: SPY Mar22/19 510 put calendars and 520 calls for 6.4% gain
OPTION SHOPPER: ERX Mar28 65 calls closed for a 90% gain