Spring Is in the Air

Hey Shoppers,

I’m sure Chicagoans aren’t the only ones chomping at the bit to get out and get away.

There is SO MUCH pent up demand from all over the country among those who have abided by the Covid lockdown rules.

As we see cities open up, people are going to want to get the hell out and go somewhere.

That means hotels — and hotels with casinos.

My first idea is in Penn National Gaming (Ticker: PENN), which holds 41 gaming and racing properties in 19 jurisdictions.

The PENN stock chart is looking bullish …

I saw a hammer candlestick formation on Friday with confirmation on Monday and Tuesday. Check it out:

Remember, a hammer forms at the bottom of a downtrend and can signal a reversal in trend.

The longer the tail or lower shadow (the white portion) the more significant the hammer.

Here, it was a mini downtrend with confirmation on Monday and Tuesday via higher trading.

I think PENN has room on the upside as it traded $128.50 five trading days ago.

PENN Vol Makes Sense

Looking at the volatilities, we can see that the implied vol of the options lines up fairly well with the 20-day historical volatility of the stock.

The 10-day historical vol has popped on that latest down move from $128.50 to a low of $95.38, which is what generally happens as stocks move down.

Looking at the options (below), I like the Mar19 expiration, as they cost less than the further out expirations.

I think PENN will move higher within the next eleven days.

I like buying the just-out-of-the-money 118 calls with a 73.91 IV and selling the 128 calls with a 75.92 IV. 

So, I will pay $2.80 for the $10 spread.

I will sell this spread and take my loss if it trades down to $1.80.

As a $10 spread, this has great potential on the upside. I will hold out for profits $4.00-$4.50 and higher.

A Quick (but Risky) Idea

My other springtime idea is AMC Entertainment (Ticker: AMC).

AMC has broken out the last two days and I think it is going higher.

The risk is earnings are being announced today after the close.

Of course AMC is going to have terrible numbers, but I still think the stock will trade higher.

Perhaps the report won’t be “as bad as expected” or it will be spun as “it’s in the past and we now have people released from lockdowns.”

I like buying the Mar19 10/15 call spread paying $1.10.

Holding this through the earnings report is where your risk lies.

These options are close to expiring and if the stock trades much lower, this trade can open on March 11 close to zero, not allowing you to exit.

For $1.10, I am going to take my chances.

Enjoy the weather while it lasts, you Northerners!

Thanks for Reading … See You Next Tuesday!

Licia Leslie

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