Last November was a “hold your breath” moment for financial markets, as everyone waited to learn the outcome of the U.S. presidential election.
Once it was more or less resolved, we saw a new wave of sector-specific trends unleashed.
While the S&P 500 has climbed nearly 18% since November 9, the top-performing energy sector is up 54%. And in No. 2 place, the financial sector has gained 35%.
Catching a ride on these short- to medium-term, market-beating sector trends is precisely what we aim to do here at Home Run Profits.
Our strategy has done great at catching the market-beating trends in energy and financials over the last several months.
And today, I was pleased to recommend taking final profits on two positions within those trends.
I hope you took a moment to pat yourself on the back after closing out your positions in Bank OZK (Nasdaq: OZK) and Marathon Oil Corp. (NYSE: MRO).
This week is a lucrative one for us! We closed out the second third of our position in logistics and freight company Expeditors International of Washington (Nasdaq: EXPD) yesterday for a gain of 121%.
We also closed the final third of our OZK position for 322%, and the final third of our MRO position for 213%.
That’s what we recorded for our model portfolio, but of course we always like to hear how you did on these trades!
Send my team and me an email to let us know…
- Did you make a gain of over 300% on the portion of OZK we closed today?
- Did you make more than 200% on OZK overall?
- Does your account reflect an overall gain of more than 100% on MRO, after closing out the final third today?
- And were you able to close out the second third of our EXPD calls yesterday for 121% gains?
Your feedback helps my team and me know what’s working for you as well as to identify ways to make it even better, so we hope you’ll write to us today at homerunprofits@moneyandmarkets.com!
Now, I’ll dig into the three positions we closed today in further detail.
We’ll start with our financial-sector play.
Well Done! 300%-Plus Profits on Bank OZK
This morning, I recommended closing your OZK position.
The broad financial sector (XLF) is up 27% since my November 24 recommendation of Bank OZK. The regional bank ETF (KRE) is up even more, at 35%.
And shares of Bank OZK did even better, up an impressive 40% during our five-and-a-half month holding period.
I wrote recently about Bank OZK’s latest earnings report, which was stellar. And I think over the medium to longer term, this stock will continue to outpace the market.
But since the call options we held expire in just over two weeks, we won’t be around for the medium to longer term.
As option traders, we have to manage ourselves out of positions based on variables specific to the option contracts we’re holding, not necessary the underlying stock and its longer-term potential.
So, in short, we took our final profits on OZK.
Next week, I plan to tell you more about what I call the “runners” strategy. We exit our profitable trades in one-third increments. While we typically hold positions for two to three months, with “runners,” we aim to hold the final third of each position beyond that.
I introduced this system upgrade in late 2020. Bank OZK is our first “runner” trade, and it worked out fantastically!
We grabbed a 100% profit on the first third … a 248% profit on the second third … and today, we closed the final third of this position for a 322% gain.
All told, we netted an impressive 223% profit on this position.
And since we locked in profits on the first two thirds after just two months, we were essentially in a “risk-free” trade before our targeted two- to three-month holding period was up.
Congratulations on a great trade in a not-so-obvious sector … regional banks!
Now on to our energy-sector trades…
Why We Closed MRO and XES Calls Today
The call options we owned on MRO and XES expire on June 18. They have a bit more time left, but holding through expiration exposes us to a lot of near-expiration volatility and luck.
See, the time-value portion of all options goes to $0 by expiration day. All that remains in an option’s market price, at expiration, is the intrinsic value, aka how much it’s “in the money.”
Consider how this worked for our MRO and XES calls.
We held $7-strike calls on MRO. Today, the stock traded for just over $11. The calls were “in the money” to the tune of $4 (i.e., $11 stock price minus $7 strike price equals $4 of intrinsic value).
We bought these calls for $1.35 last December, so $4 was a considerable profit!
And we didn’t want to risk giving a substantial portion of that profit back if the stock stumbled in the short term. Since our calls expire on June 18, it would lock us to the fate of the stock’s move over the next five weeks. That meant we wouldn’t have time to recover from a pullback.
MRO is the second position on which we had the opportunity to apply my new “runner” strategy.
We locked in a 39% profit on the first third … a 105% profit on the second third … and today, we closed the final third of this position for a 213% gain.
All told, we earned greater profits with each of our three exits. And overall, we netted an impressive 119% profit on this position. Great work!
Meanwhile, while we didn’t exactly hit a “home run” with the SPDR S&P Oil & Gas Equipment ETF (NYSE: XES), we were able to exit the position with a minor loss of 10%.
The bullish trend in XES didn’t extend long enough to allow us to make a “runner” of it. But we took the opportunity to lock in a 100% profit on the first third of the position.
That insulated us from the possibility of taking a sizable loss on the overall position, even if the trend turned against us. That’s just what happened.
Now, we could decide to continue holding our $55-strike XES calls … hoping the ETF makes a bullish recovery in the next five weeks.
But just as with MRO, we’d be at the mercy of this trend’s short-term whims … and that’s not the strategy we run.
What’s more, shares of XES now trade for just over $52. That means our $55-strike calls are “out of the money,” with no intrinsic value (i.e., $52 stock price minus $55 strike price equals negative $3 intrinsic value).
The current market price of the XES calls is more than $2 … but that’s all time-value premium, which will go to $0 by June 18.
We paid $6.70 for these call options. So, to break even, shares of XES need to close at $61.70 (i.e., $61.70 stock price minus $55 strike price equals $6.70 intrinsic value).
We’d need shares of XES to rally 18% just to break even on our calls. That’s a tall order, especially if we’re hoping for that move in the short term.
We could take our chances and realize that we risk the remaining two-thirds of our position going to zero. In that scenario, the position would result in a 33% loss overall (i.e., the average of: +100%, -100% and -100%).
And if you’re bullish on XES or just feel lucky … that’s an option to consider.
But if you followed my recommendation, you cut your losses short today. You lost just 10%. And now you have 90% of your initial investment free for our next opportunity.
It will be a “fresh” high-probability trade relative to what we face in the final five weeks of the XES calls we held since January.
More on Our “Runners” Strategy
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Click here for more about the Leaders & Laggards Board. |
As you can see on this week’s Leaders & Laggards Board, momentum in the industrial, materials and consumer staples sectors is ramping up … and that’s all good news for our more recently initiated plays on DBC, EXPD and MMM. (More on each of these below.)
Now that we have a couple of “runners” under our belt, I’m excited to share more about this strategy. We’ll get into that in more detail next week.
By the way, our position in Expeditors International of Washington (Nasdaq: EXPD) is now a “runner.”
We locked in a 52% profit on the first third, in less than three weeks … a 121% profit on the second third, yesterday … and now we have the luxury of holding an essentially “risk-free” trade for as long as we like. The call options don’t expire until August 21!
More on how this is now a “risk-free” trade next week. In summary, our portfolio now has five open positions:
- EXPD.
- Supernus Pharmaceuticals Inc. (Nasdaq: SUPN), our off-the-radar drug stock play.
- Invesco DB Commodity Index Tracking Fund (NYSE: DBC), our play on cheap commodities.
- 3M Company (NYSE: MMM), which makes Post-its, medical masks and more.
- SPDR Utilities Sector ETF (NYSE: XLU), our broad utilities sector play.
Four of the five are in the green … one is a risk-free runner (EXPD) … and we’ve already locked in first-third profits on XLU (+61%) and MMM (+64%).
I hope you’re doing well and feeling confident in these trades!
My goal is for you to enjoy following the service as much as I enjoy running it!
I’m always eager to hear from you and to get your feedback.
Remember to write to me my team and me at homerunprofits@moneyandmarkets.com to let us know how you did on our recently closed trades!
And if you have any suggestions to make this service even more fun to trade, we’re all ears!
To good profits,
Adam O’Dell
Editor, Home Run Profits