Buy a Put on POST

By Linda McDonough • January 20, 2017

Buy to open the February 17, 2017 put on Post Holdings (POST) with a strike price of $85.00 at $3.60 or lower (Symbol: POST170217P0008500).

These puts are linked to the earnings event on or around February 2nd.

Post Holdings, most well known for its Fruity Pebbles and Raisin Bran ready to eat cereals, has painted itself into a corner. Two large acquisitions in 2014 and 2015 piled on more than $4.8 billion of debt at a time when all of its customers are experiencing weak food sales.

Although Post’s purchase of bagged value cereal maker MOM foods in May 2015 plumped sales temporarily, the stark reality of the decaying trends in the base business should be fully evident when the company reports earnings on or around February 2nd (date is not confirmed by company yet).

Revenue without the bump from the MOM acquisition has been down 6%, yet analysts expect a smaller 1.5% drop for the December quarter. Product margin improvements look to be mostly from product mix, another benefit that will shrink now that the benefit from the MOM purchase fades.

Post’s interest on its debt is barely covered by its operating income. This leaves very little wiggle room for the company if profits come in lower than expected.

Groceries stores are in a house of pain. Deflation in perishable goods, increased price competition and an abundance of grocery outlets are hurting sales:

Walmart, Post’s largest customer (13% of total sales), has seen a small (1.5%) increase in its food sales but called out better pricing from its food suppliers as one bright spot in the most recent quarter. Better pricing for Walmart means lower prices paid to Post and other suppliers. It also called out holding less inventory per store to improve its cash balance.
Sam’s Club and Costco, who make up 48% of Post’s nutrition sales (5% of Post’s overall sales) have noted lower pricing for grocery products.
Whole Foods, who together with private chain Trader Joe’s, makes up 25% of private brand sales (3% of Post’s overall sales), saw an increase of just 2% in sales in 2016 but generated less profits than the prior year.
Target just reported a weaker than expected comp for the holiday period, noting a low single digit decline in food and essentials, the category encompassing Post’s products.

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black arrow

01/24/17 ‐ 8:07am ET January 24, 2017 at 8:07am ET

Hi Linda ,
I saw the “post” on post. Next I decided to “put” that trade on late yesterday-sorry I like puns. Soon after I noticed it is ITM. Here is my dumb question, is this a good thing for the post position? Meaning will it still make us moolah?
Thank you,
Jon Day

Linda McDonough

01/24/17 ‐ 8:37am ET January 24, 2017 at 8:37am ET

Jon,

Yes the price of the put should continue to increase as the price of the stock drops despite it being in the money. POST did not offer a strike of $82.5 which would have been less absolute dollars in price. Alas, the $85 strike will do!

Best,
Linda

black arrow

01/24/17 ‐ 9:27am ET January 24, 2017 at 9:27am ET

Thanks for your prompt answer, I gather its a tad windy and rainy in Boston area. Here in the NEK of VT we had freezing rain with a little snow on top. No school today :^(.
Sorry Post I am having Old Fashioned oatmeal.

Peace54

01/29/17 ‐ 5:10pm ET January 29, 2017 at 5:10pm ET

Is it ok to position Post put for Fed.17 with strike 85c at 3.60 or lower?

Thank you.

Derek: Las Vegas, NV

01/29/17 ‐ 11:11pm ET January 29, 2017 at 11:11pm ET

I think the current cost is at $4.35 which is higher than the recommended limit. Currently it doesn’t look like a valid new trade. Keep in line with the recommended limits and you should be fine.

Derek

Linda McDonough

01/30/17 ‐ 7:17am ET January 30, 2017 at 7:17am ET

I would wait on the POST puts. They’ve moved up almost 20% since I recommended them. If the stock moves up between now and earnings on February 2 (this Thursday) you might get a chance to buy them below the $3.60 limit. Don’t worry though, I’ve got quite a few new trades I’ll be posting this week to take advantage of.
Best,
Linda

Robert Moore

01/30/17 ‐ 1:11pm ET January 30, 2017 at 1:11pm ET

My broker informed me today that the ASK price for POST is now $4.60… no where near your limit of $3.60. Is your recommendation to hold firm a buying for at $3.60 or lower?
I have other transactions I need to execute. Is there a new trade you can recommend?
Thank you!
Robert

Linda McDonough

01/30/17 ‐ 1:19pm ET January 30, 2017 at 1:19pm ET

Hi Robert,
See my comments below from another subscriber regarding the POST puts. I would wait on them right now. Option prices move incredibly fast so there’s a chance if the stock jumps you could get in close to my limit but it’s not worth chasing the price.
I am working on a whole boat of new trading ideas though so stay tuned!
Best,
Linda

greenmaster

02/03/17 ‐ 5:38am ET February 3, 2017 at 5:38am ET

No worries Robert. Today, U can get an awesome price on those Puts. Stock is headed much higher. We are all on the wrong side. just go figure.

greenmaster

02/03/17 ‐ 9:10am ET February 3, 2017 at 9:10am ET

Hello Linda. You replied to my comments about HEES. You were a few days late. May I make a suggestion to you? If U find a potential stock pick, Let us all know right away. I for one will take a good hard look at it and decide for myself If I should make a move. I joined this service thinking it was going to prove to be a very good service. Unfortunately, so far what I have witnessed is too many stock picks across all the different sources here on wealth society go the opposite direction of what was recommended. I paid a handsome subscription fee and it looks as though, It will prove challenging to re-coup the fee. We need winners. You’re not alone Linda. I must say however, I am losing faith in this wealth. Wealth is driving me to the poor house. I have made money in other stocks recommended by other services. I surely hope this service pays off. Sorry. I’m majorly bummed out about being here so far.

Derek: Las Vegas, NV

02/03/17 ‐ 2:21pm ET February 3, 2017 at 2:21pm ET

How can you not be profiting? I’m with Wealth Society as well and if you follow the system it’s hard not to be profitable. You don’t have to use all the publications, pick the ones that work for you. Personally, my favorite is OFI and Personal Finance with conservative plays. Most of my capital goes into those recommendations. I then use Systematic Wealth which is a little more aggressive, so I use a little less capital. The most aggressive services are Profit Catalyst and Velocity Trader which I enjoy very much, but it’s the place I risk the least amount of capital. I guess my suggestion would be to figure you how much capital to use for each service that keeps you profitable.

Have a good one!

Derek

greenmaster

02/04/17 ‐ 4:09am ET February 4, 2017 at 4:09am ET

Hello Derek. I did not say all the stocks they recommend are losing. I follow all recommendations being put out. The list is long. A Few examples of what I am referring to would be …ARGO….AFSI…BBY…CAT…CRUS…GILD…HIMX…POST…These are all losers at this time. Right now, the losers outweigh the gainers. Unfortunately. I have a set limit of Investment capital in each stock as they come along. I can’t do all the stocks they recommend, But I am spread out pretty good. Of the stocks I have so far, they just are not going real well. U even said it yourself. Your frustrated with at least 3. So there U go. I’m not in this boat alone. I do look for opportunity everywhere I can. I have 16 sources I work with. Now things may change and I hope they do. We shall see. The one stock I think will clean up all these losers is CSCO. I’m betting real heavy on this one. Clean up and then it doesn’t matter what the rest of the losers do for now. Some of the winners right now are AAPL…CARB…CRTO…CSCO…MVIS…PI…TLLP…Just under a 50-50 ratio. 50-50 doesn’t make any money overall. K. Thank U my friend.

greenmaster

02/03/17 ‐ 9:29am ET February 3, 2017 at 9:29am ET

Let me give U a hot tip. I talked about this stock 2 months ago. STM. Seems to only know one direction. That direction is UP, UP, UP. Up about 30% in 2 months. I’ve been loading up on this little rocket all along. Started out at $10.77/sh and now it’s up over $14/sh. It has Options also. I have 85 contracts on it so far. I plan to buy more. This company is a turn around story. I’m not all that concerned about the story, But I do ,love the action. UP, UP , UP & away in my big Balloon.
When I did talk about this stock, it got poo-pooed. What a mistake that was. I see this stock going to at least $20.00 over the next few months. So there U go. Check it out.

Linda McDonough

02/03/17 ‐ 10:13am ET February 3, 2017 at 10:13am ET

Thanks for the tip. I will check it out.
Linda

Derek: Las Vegas, NV

02/03/17 ‐ 2:04pm ET February 3, 2017 at 2:04pm ET

greenmaster, your commentary is very entertaining. Congrats on the nice play on STM!

Derek

greenmaster

02/04/17 ‐ 4:12am ET February 4, 2017 at 4:12am ET

I did bump up my contracts on STM. Up to 107 right now. Full steam ahead. Go, Go, Go…

greenmaster

02/03/17 ‐ 9:48am ET February 3, 2017 at 9:48am ET

Well It Looks like we just may have a WINNER after all on Post. It’s headed down. It was much higher in the after hours market overnight. Amazing. We shall see. If It hits, I will congratulate U Linda. K. Hang in there.

Linda McDonough

02/03/17 ‐ 10:13am ET February 3, 2017 at 10:13am ET

You should see my sell alert on the puts soon. Although there are several trends in the numbers and issues with the balance sheet that make me think POST will stumble in future quarters, I don’t see the stock declining enough before expiration for a huge gain in the puts.
Best,
Linda

Rick

02/03/17 ‐ 10:03am ET February 3, 2017 at 10:03am ET

Linda,

Thanks for suggesting we listen to the call. My read was that their report was not negative enough to drive the stock down measurably. So, I closed the position at $3.20 after the call. So I settled for a modest loss. There was a little drop but it looks like the price has bounced up now.

Linda McDonough

02/03/17 ‐ 10:12am ET February 3, 2017 at 10:12am ET

Rick,
I agree- you should see my sell alert come through soon. I still think the company is in a secular decline and saw several issues with the balance sheet that make me think trouble lies ahead. That said, the puts expire in a few weeks so I don’t want to see subscribers lose more money in them.
Best,
Linda

Rick

02/03/17 ‐ 11:18am ET February 3, 2017 at 11:18am ET

Agreed – I still think CAT will be our big winner. I can’t believe it hasn’t dropped yet but it is way overvalued.

Derek: Las Vegas, NV

02/03/17 ‐ 2:01pm ET February 3, 2017 at 2:01pm ET

Same here, CAT should be dropping, GILD should be going up and TSLA is overpriced. These three companies are extremely frustrating! They do the opposite of what they should be doing. Grrrr… lol

greenmaster

02/04/17 ‐ 4:24am ET February 4, 2017 at 4:24am ET

Don’t look for TSLA pulling back very much any time soon. The stock is most likely going much higher. These investors love the Stock. Any pullback is a buying opportunity. Stocks don’t get to over $200.00 share w/o good reason. Any bad news on this stock however will drop the price. But that just doesn’t seem to be happening. GILD will recover in time. Just hang tough on this one. CAT was one of the darling stocks of the DOW 30 Last year. One of the best stocks in the DOW. The only way it will drop any substantial amount is if the DOW takes a huge dive. We’ll watch and see. K. Thanks.

black arrow

02/06/17 ‐ 8:13am ET February 6, 2017 at 8:13am ET

DEREK, just apprising you of unusual call purchase from Benziger
Charter CHTR MAR 385 calls 1243 ask 0.80 but the mid price is lower.
I am in. earnings 2/16

greenmaster

02/03/17 ‐ 11:30am ET February 3, 2017 at 11:30am ET

POST. I’m going to hang in there with POST. The Volume is fairly low on it today. It just may drop after all. It’s hesitating going northbound. Looks like the southbound train 2 Georgia might be coming in soon. We shall see.

greenmaster

02/04/17 ‐ 3:39am ET February 4, 2017 at 3:39am ET

Hello Linda. One of the services offered here on wealth recommended CSCO. Looks like there is an opportunity coming very soon. The APR 33 CALL…30 Cents right now. Earnings report due on 2-15-17. All it needs is a 2 point move up to achieve a 200-300% gain on the Option. Check it out and see what U think. I’m all over this stock myself with 230 Contracts. I might bump that up to 300. Clean up shop with this Stock. Or possibly the May 36 Call. They have the potential of a 400% Gain. U can buy those around a mere 7-8 Cents per contract. K. Thanks.

greenmaster

02/04/17 ‐ 7:08am ET February 4, 2017 at 7:08am ET

Hey all. I checked out Systematic Wealth and they have CSCO Target price at $37.00. So there U go. The APR 33 Calls I was talking about, just may prove to be worthwhile. If this stock gets anywhere near the $37 target soon, the Options will be worth a small mint if U have enough of them. K. Thanks.

greenmaster

02/04/17 ‐ 8:59am ET February 4, 2017 at 8:59am ET

Hello Linda. I have a question for you. Some years back I had a broker tell me that when you trade options on the sell side IE: You bought a Call or Put, the traders don’t have to buy it back when you want to sell it? What do you know about this? Most people probably are not aware of this. This of course adds extreme risk if that is true. Please advise.

http://wallstreet.cch.com/cboe/rules/cboe-rules/chp_1_1/chp_1_1_8/chp_1_1_8_1/chp_1_1_8_1_8/default.asp

greenmaster

02/05/17 ‐ 10:42pm ET February 5, 2017 at 10:42pm ET

This tab at the bottom of my last question is something for a lawyer to read. All I needed to know was, Is it true Traders don’t have to buy the options back. Yes or No. I have never had this happen, But I’ve been aware that possibly this could happen. Of course, U would have to ask, How is that legal? Just take ur money and run with it? Where there is money involved, U just never know what could happen. Taking your money would be corrupt. However, I will am not worried about it since it has never happened. Thank God for that. So maybe nobody has an answer for me. So all I can do is assume the risk and keep on going. Thanks anyhow.

Rick

02/06/17 ‐ 12:31pm ET February 6, 2017 at 12:31pm ET

The posted link is the rule that governs Market Makers. The role of Market Makers is to provide liquidity (someone to buy or sell) for a particular security. The simple answer to your question is true, but your subsequent implication is not true because the markets have Market Makers. Most transactions are not directly between buyers and sellers but rather through Market Makers who facilitate the transactions.

Linda McDonough

02/06/17 ‐ 1:28pm ET February 6, 2017 at 1:28pm ET

Hello all,
Option market makers are obligated by exchange rules to maintain orderly markets and liquidity. Of course, they can widen bid/ask spreads if volatility and uncertainty increase, but they must offer both a bid and an ask for each option series that they are responsible for making markets. Many options are less liquid than their stock counterparts so the real risk is that the price is not acceptable or the spread between the bid and ask quite wide.
Best,
Linda

greenmaster

02/05/17 ‐ 10:51pm ET February 5, 2017 at 10:51pm ET

CSCO. The company just bought AppDynamics recently. Ever since then the stock has been heading north. Apparently the market welcomes this news. So the future looks bright for CSCO. Stock or Calls are the way to go right now for sure. Just some more food for thought. Good luck to us all who buy CSCO. We all can then say thanks to the people at SYSTEMATIC WEALTH.
App was scheduled to do an IPO when CSCO came in and bought them at the last minute.
Now if this doesn’t work out, I of course end up with egg fu yuck on me. Oh well. No worse than anybody else. Just exchanging Ideas. Thanks.

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