To The Moon

U.S. stocks ended the first week of October with three major indexes rising. In a sign that the U.S. labor market remains tight, the Bureau of Labor Statistics reported on Friday that nonfarm payrolls rose to 336,000 jobs in September, well above expectations of 170,000. The U.S. unemployment rate came in at 3.8 percent in September, higher than the expected 3.70 percent, while average hourly earnings growth slowed, which analysts said highlighted an increase in labor supply that could help ease wage inflation.

Talks have dawned on a strike by the United Auto Workers union against GM, Ford and Stellantis, with GM agreeing to produce electric vehicle batteries under a comprehensive deal that would not expand the scale of the strike.

The Information reported on Friday that Microsoft will fulfill a plan that has been years in the making and introduce the company's first chip designed specifically for artificial intelligence (AI) at its annual developer conference next month.

Week's put strategy picks

1 $Netflix(NFLX)$

sell $NFLX 20231027 370.0 PUT$

Exercise price: 370; Expiration date: Oct 27; Volume: 835; Total turnover: 1.6 million; Stock price at transaction: 369.57;

Annualized return: 62.19%

Company introduction:

Netflix has the world's leading Internet subscription service for enjoying TV shows and movies, and its users in the United States can instantly watch unlimited TV shows and movies streaming on TV over the Internet via computers and mobile devices.

Recent news:

Berenstein, covering Netflix for the first time, gave it a "market in line" rating with a $375 price target, saying the media and telecom company's future growth and profitability will outpace linear TV's decline and direct-to-consumer (DTC) growth. Netflix is clearly the undisputed leader in subscription video on demand (SVOD) and is all over the place to drive subscriber growth and expand profits. However, the bank's expectations for Netflix's subscriber growth, especially in international markets, are below consensus.

Strategy analysis:

Netflix is scheduled to report earnings after hours on Oct. 18. The market is pricing in expectations ahead of earnings season.

2 $Microsoft(MSFT)$

sell $MSFT 20231020 345.0 PUT$

Exercise price: 345; Expiration date: Oct 20; Volume: 2800; Total turnover: 7.79 million; Stock price at transaction: 317;

Annualized return: 0.69%

Company introduction:

Microsoft develops and supports software, services, devices and solutions that bring new value to customers and help individuals and businesses reach their full potential. The company offers a range of services, including cloud-based solutions that provide software, services, platforms, and content to customers, and the company provides solution support and consulting services.

Recent news:

1 The Information reported on Friday (6) that Microsoft is fulfilling a plan that has been in the works for years and will introduce the company's first chip designed specifically for artificial intelligence (AI) at its annual developer conference next month. It's the culmination of years of work that could help Microsoft reduce its reliance on Nvida-designed AI chips, which have been in short supply as demand surges.

The Microsoft chip, similar to Nvidia Gpus, is designed for data center servers that train and run large language models, the software behind conversational AI features like OpenAI's ChatGPT.

In September this year, the market was widely rumored that Microsoft began to revise Nvidia H100 chip orders, and the shipment slowed down, which shows that Microsoft AI chip has been developed and tested mature, and will get rid of its heavy dependence on Nvidia.

2 According to foreign media The Verge reported on Friday evening, a source familiar with The $Microsoft (MSFT)$plan told The Verge that Microsoft is preparing to pay $68.7 billion on October 13 (next Friday) (IT home note: At present, about 502.197 billion yuan) completed the acquisition of Blizzard for 20 months.

Strategy analysis:

Two recent good rumors, the market or will digest the good expectations in advance. Institutions choose to aggressively sell in-bid puts.

3 $Citigroup(C)$

sell $C 20240920 33.0 PUT$

Exercise price: 33; Expiration date: Sep 20; Volume: 1900; Total turnover: 366,700; Stock price at transaction: 39.89;

Annualized return: 4.67%

Company introduction:

Citigroup is a global diversified financial services holding company that provides consumers, corporations, governments and institutions with a broad range of financial products and services, including retail banking and credit, corporate and investment banking, securities brokerage, trading services and wealth management.

Recent news:

With the bank's stock at a near one-year low, Citigroup CEO Jane Frazier announced another restructuring plan last month, which she has overseen since 2021.

Strategy analysis:

Share prices fell to a two-year low, according to the rule of earnings season banking sector share prices before the disclosure of earnings probability is greater.

4 $Bank of America(BAC)$

sell $BAC 20240419 20.0 PUT$

Exercise price: 20; Expiration date: April 19, 2024; Volume: 1840; Total turnover: 92,000; Stock price at transaction: 26.12;

Annualized return: 3.52%

Company introduction:

Bank of America Corporation is a bank holding company and a financial holding company. The company is one of the world's largest financial institutions, offering a comprehensive range of banking, investment, asset management, and other financial and risk management products and services to individual consumers, small and mid-market businesses, institutional investors, large corporations, and governments.

Recent news:

Total bank deposits in the U.S. fell 4.8 percent, or $872 billion, to $17.27 trillion as of June 30, according to S&P Global. This is the first decline since records began in 1994. Among the top 15 deposit holders, Charles Schwab saw the biggest decline in annual deposits, down 31.1% to $304.79 billion.

Bank of America, the largest bank by total deposits in 2020, saw its market share fall 3 basis points to 10.93 percent, S&P Global said. In the past year ended June 30, deposits at U.S. banks fell 5 percent to $1.888 trillion.

Strategy analysis:

Bank of America shares fell to a two-year low, and according to the rule of earnings season, bank shares are more likely to rise ahead of earnings reports.

5 $Delta Air Lines(DAL)$

sell $DAL 20231215 32.0 PUT$

Exercise price: 32; Expiration date:Dec 15 ; Volume: 5000; Total turnover: 380,000; Stock price at transaction: 36.56;

Annualized return: 9.44%

Company introduction:

Delta Air Lines serves passengers and cargo throughout the United States and around the world. The company's route network covers major domestic and international markets.

Recent news:

Bank of America cut its price target on Delta Air Lines to $40 from $50 and maintained a "buy" rating.

Strategy analysis:

DAL will report earnings before the market on October 12, and institutions believe that the current low price is suitable for selling put strategy.

6 $McDonald's(MCD)$

sell $MCD 20231020 275.0 PUT$

Exercise price: 275; Expiration date: Oct 20; Volume: 2000; Total turnover: 4.01 million; Stock price at transaction: 255;

Annualized return: -2.04%

Company introduction:

McDonald's sells premium food and beverages in 119 countries. McDonald's franchised restaurants are owned and operated by one of the following structures - a traditional franchise, a development license, or an affiliate.

Recent news:

1 On October 5, McDonald's announced that its board of directors had approved a 10% increase in the quarterly cash dividend, from $1.52 to $1.67 per share, to be paid on December 15 to shareholders of record as of the close of business on December 1. The latest second-quarter earnings report showed that EPS jumped from $2.63 in the first quarter to $3.17, exceeding market expectations for six consecutive quarters. Quarterly revenue of $6.5 billion was the highest since the fourth quarter of 2011 ($6.01 billion).

2 Eastern time on October 5, the two largest beverage giants in the United States, Coca-Cola (KO)$and Pepsi, fell 4.83% and 5.22%, respectively, and their market value evaporated $11.5 billion and $12.13 billion in one trading day. Earlier, a senior executive of US supermarket giant Walmart (WMT) warned that those who are taking GLP-1 receptor agonists such as Ozempic and Wegovy have reduced shopping demand, and this new class of diet drugs could cause major changes in the US food industry.

In August, a team of 17 Morgan Stanley analysts released a research report saying that food and beverage manufacturers, restaurants, grocery stores and other fields will be affected by diet drugs, because the number of patients who need to take diet drugs is expected to increase to 24 million in the next decade, accounting for nearly 7% of the total population of the United States.

Strategy analysis:

Adversely affected by diet drugs McDonald's stock price fell close to the 200-week average, from the technical level has a large rebound space, this institution chose to sell a large number of in-price put options.

Overview of selling put options

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Strategy introduction:

Selling a put option is a common option trading strategy.

A put option, as its name suggests, represents the right to short a stock. A trader buying a put option usually indicates a bearish trend in the stock, while selling a put option indicates that the trader wants to buy the stock at a certain strike price, or believes that the stock price will not fall below a certain strike price for a certain period of time, thereby earning a premium.

Sell the put option to receive the right to profit, and assume the obligation to exercise the right to buy the stock at a future agreed time.

Strategy advantages: sell to get the right fee, when the option expires, when the stock price is higher than or equal to the exercise price, there is no need to accept the positive stock.

Strategy disadvantages: When the option expires, when the stock price trend is not as expected and falls below the exercise price, it is still necessary to buy the positive shares at the exercise price, that is, to buy the shares above the positive share price.

Example:

When the stock price of Coca-Cola was 40 in that year, Buffett sold 5 million shares with an exercise price of 35 put, and obtained a royalty of $1.50 per share (that is, $750). If the expiration stock price was not lower than 35, the put would be cancelled and Buffett would earn 7.5 million. If the expiration stock price reached 35, Buffett would buy 5 million shares of Coca-Cola according to 35. And since the first 1.5 earned, the equivalent of the cost per share is only 33.5.