In The Money with Fidelity Investments: GILD & GLD

by Dan August 26, 2020 4:12 pm • InTheMoney• MorningWord• Trade Ideas

Shortly after the open today, I recorded my weekly In The Money segment with Fidelity Investments. We discussed the S&P 500 (SPX) establishing a new range above the prior high, how Tomorrow’s Fed Speak could put to low rates for longer but the increasing appetite for inflation which could put upward pressure on gold, and I offer a defined risk way to play GLD for new highs in the months to come. I also detail a contrarian bullish play in shares of Gilead (GILD) after its rough couple of months coming off of its coronavirus therapy (Remdesivir) optimism earlier in the Spring but has since round-tripped its entire move and is getting dangerously close to its multi-year technical support in the low $60s.

Click below to watch and see my notes for the segment below that:

SPX broke out, not down. despite weak breadth. Does prior resistance now become support?
Screen Shot 2020-08-25 at 3.56.19 PM.png
What sorts of stocks can help convince bears that the rally has another leg??
Small caps, cyclicals, financials, energy…
As we head into fall with short interest at 15-year lows, and optimism high, how might investors/traders look to be opportunistic if they expect volatility to pick up into the election?
Two ways… Gold and Drugs.
Trade Idea #1: Reload on Gold (GLD)
Back in March on In The Money when GLD was trading $140 I detailed a bullish trade idea using options in etf that tracks the shiny metal… it broke out to a new all-time high as the U.S. dollar sold off 10% this year.
Screen Shot 2020-08-25 at 4.20.57 PM.png
GLD has pulled back to its uptrend from its March lows…
Screen Shot 2020-08-25 at 4.19.44 PM.png
This is the sort of market to buy dips in winners when they correct to their uptrends as in the case here…, but want to stop the trade below the uptrend…
Bullish Trade Idea: GLD ($181) Buy Nov 182 – 205 calls spread for $5
-Buy to open 1 Nov 182 call for $7
-Sell to open 1 Nov 205 call at $2
Break-even on Nov expiation:
Profits of up to 18 between 187 and 205 with max gain of 18 above 205
Losses of up to 5 between 182 and 187 with max loss of 5 below 182
Rationale: this trade idea risks a little less than 3% of the etf price, breaks even up 3.3% and has a max gain of 10% of the etf price if it is up 13% in 3 months.
Trade Idea #2:  Bullish Gilead (GILD)
Earlier in the year, the company was thought to have a solid therapy for covid, Remdesivir… the stock has given back all of those gains, $60 is massive long term support.
-Trades 9.5x earnings
-pays 4.15% dividend yield,
-very solid balance sheet.
Stock unchanged on the year, down 23% from the highs in the Spring when Remdesvir looked like a front runner therapy.
Screen Shot 2020-08-25 at 4.06.39 PM.png
-Buy the stock here at $65.50 with a 1yr outlook you have a 4.15% buffer to the downside via its dividend…Use a hard $60 stop or 10% downside…
Or play with defined risk…
GILD ($65.50) Buy Nov 65 call for $3.80
Break-even on Nov expiration:
Profits 68.80
Losses of up to 3.80 between 65 and 68.80 with max loss of 3.80 at 65 or lower.
Rationale: this trade idea risks 5.5% of the stock price, has 3 months to play out… is already 50 cents in the money
Last week detailed bearish trade idea in banks stock via XLF… my thought near term low yields and uncertainty regarding defaults and bankruptcies related to shutdown will continue to weigh on shares…
TRADE IDEA: XLF ($24.95)  Buy Oct 25 – 20 put spread for $1
XLF in the same spot, put spread decayed a nickel, will want to keep a close eye on this… as i said in the original idea, this group will eventually be a massive contrarian laggard play.. don’t want to get caught offsides…