3TL Alert: Cintas Corp. (CTAS)

By Jim Pearce • December 12, 2016

TRADE INSTRUCTIONS
Date: December 12, 2016
Name: Cintas Corp.
Symbol: CTAS
Type: Short Sale or Long Put
Limit: N/A

Because my recent alert (“Giving this Bull a Rest”) laid out the possibility of a near-term market decline, I want to give you an optional “bonus pick” to play that scenario, if you wish.

This is our first 3TL (“3 Time Loser”) recommendation, so let me explain the ground rules first.

This is a stock that I think is at risk of declining in value soon so the appropriate trade would be either a short sale of the stock or an opening purchase of a long put, but DO NOT GO LONG! And since you can play it a number of ways with put options in terms of strike prices and expiration dates I’m leaving it up to each of you to decide what, if anything, you want to do with it.

For that reasons it will not be tracked in our portfolio. This alert is not a substitute for our usual buy recommendation, but is simply an extra “bonus pick” for you to consider.

With that out of the way, let me explain why Cintas qualifies as a “3 Time Loser”.

TRADE RATIONALE

First, Cintas has the lowest possible IDEAL score of 0 (on a scale of 0 – 10), meaning it appears grossly overvalued from a long term perspective based on dividend yield, cash flow and relative valuation.

Second, CTAS is currently trading far above its 50DMA (50-day moving average), and is bumping up against its upper Bollinger Band so it also appears overvalued from a short term perspective.

Third, its recent share price appreciation has been built on declining trading volume over the past four days, suggesting it is on the verge of running out of steam.

Throw in the fact that its institutional shareholders sold over 11 million shares of CTAS during the previous quarter and you have a potential dumpster fire in the making! But all fires require a spark, and CTAS is scheduled to release quarterly earnings next week so that may be all it takes if either past results or future guidance are the least bit disappointing.

However, from an immediate timing perspective we may see some buying from index funds today since Cintas was just added to the Nasdaq 100, so ETFs tracking that group of stocks will need to rebalance their portfolios to make room for CTAS. For that reason you may want to wait until later this afternoon or tomorrow to take any short action in the stock.

GIVE ME YOUR FEEDBACK

Systematic Wealth primarily intends to give you long recommendations on stocks. But I’m happy to give you more picks like this to play market downturns as well. I can also give you more specific options recommendations on both short and long opportunities. Let me know what you want by posting to this Forum discussion.

Stock Talk

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Larry Johnson

12/12/16 ‐ 9:30am ET December 12, 2016 at 9:30am ET

Interesting pick, Jim.
It’s looks like one to watch for the next 2-3 days.
On something like this, I’d probably be inclined to sell one PUT due to it’s high market price right now and I’d want to get at least $3 (or more) for the contract. I’d keep the time frame close, maybe Jan or Feb…no more than March for sure. I’m gonna watch it and see what it does.

Jim Pearce

12/12/16 ‐ 9:46am ET December 12, 2016 at 9:46am ET

Just to be clear, if you sell a put then your equity in it would decline in value (all other things being equal) if the share price of CTAS goes down (as I expect it to) since you would have to close it out at a higher price by buying it back, so in my alert I am recommending buying a put as an opening transaction to be closed out later by a closing sale transaction (or expire) at a higher price

Larry Johnson

12/12/16 ‐ 10:49am ET December 12, 2016 at 10:49am ET

True, Jim…my bad. That’s why I’d be watching it closely before doing anything with it.
Buying the PUT would be the proper strategy IF a play were to be made.
Thanks!

black arrow

12/12/16 ‐ 10:38am ET December 12, 2016 at 10:38am ET

On the cloud chart the green area is an uptrend when stock prices are above it the reddish brown area seems to indicate to me the time to exit the trade may well be between 14th and nineteenth
The pivot points on other chart tell us wait for it to dip below R as in resistance 1 [R1]
hope that may be of some help.

black arrow

12/12/16 ‐ 10:33am ET December 12, 2016 at 10:33am ET

Hi, I have a lot of interruptions due to snow today ,but here is a link to an ichimoku cloud chart of cntas
http://schrts.co/ZGxfaa

here is a chart with bollinger bands remember the dashed line is the 20 day Moving avg [MA] when a stock passes thru the 20, next area to watch is the 50 – I have the 50 in the cloud chart in a cyan blue color. http://schrts.co/l4A63H

black arrow

12/12/16 ‐ 10:51am ET December 12, 2016 at 10:51am ET

Hi,
On the pivot point chart keep in mind we have to wait til end of day to know fer sur, but ittodays symbol is looking like it could end up being a Hanging man. This would be good for us. After a decent uptrend the Hanging Man means a new downtrend will be in place. But like I said we need to wait because thru the day the symbol changes.

Skippie2000

12/12/16 ‐ 12:17pm ET December 12, 2016 at 12:17pm ET

Can someone explain how they would do the put on this stock? I am a novice to options. Thank you.

black arrow

12/12/16 ‐ 12:49pm ET December 12, 2016 at 12:49pm ET

I finally got a little quiet time and I did buy a put . Here is my disclaimer I confess I am not close to being a Sterling Options trader. However I have traded silver – just a pun haha.
CTAS Jan 20 2017 115 Put 39 Days to Expiration
I wanted an expiration that was out a bit keeping in mind I have reD 49 DAYS IS THOUGH OF IDEAL DUE TO SOME STUDIES ALSI 21 DAYS OUT MAY BE BEST RETURN TIME. WOOPS CAP LOCK SORRY. I am keeping in mind a chandelier exit is at 116.70 a recent low was 114.21, mid bollinger band is at 107.62, its 50 day MA is at 110.11you can see that on cloud chart. So those are some things I considered.
so remember I am no expert on Options

Rick

12/12/16 ‐ 1:21pm ET December 12, 2016 at 1:21pm ET

If I did a spread – buy a Put at $120 and sell a Put at $110 with a net debit of $2.40. Then my risk is the net debit $240 per contract and my max gain would be the $1000 per contract spread, correct?

Skippie2000

12/12/16 ‐ 1:38pm ET December 12, 2016 at 1:38pm ET

Thanks for the input. Rick, you did not give an expiration date? Also I am limited with my options choices. I can buy a put to open, but I cannot sell a put. Any recommendations?

black arrow

12/12/16 ‐ 4:42pm ET December 12, 2016 at 4:42pm ET

The idea skippie is to buy to open a put.
OK so you can’t sell one. not a problem.
That may be an area of confusion for you right now.
This Does Not Mean you can’t Sell to close the put you may buy that would be OK. A very large amount of all options that get bought to open NEVER go to expiration. This is in part because an option loses its value each day. It loses the most before expiration its called a waterfall effect.

Buy to Open Sell to Close
May the force be with you

Alpha_Dog_510

12/13/16 ‐ 2:54am ET December 13, 2016 at 2:54am ET

Thank you, Black Arrow

Jim Pearce

12/12/16 ‐ 4:47pm ET December 12, 2016 at 4:47pm ET

You can request a higher level of options trading approval from your broker so you can execute spreads and straddles. But if that is refused then about all you can probably do is open with a buy and close with a sell as BA describes below.

Rick

12/12/16 ‐ 5:01pm ET December 12, 2016 at 5:01pm ET

Sorry both were January 20, 2017 expirations.

Larry Johnson

12/13/16 ‐ 10:40am ET December 13, 2016 at 10:40am ET

Thought about it yesterday, and bought one Jan 155 PUT right at the market open this morning while it was showing a just little uptrend. Let’s see what happens.

Jim Pearce

12/22/16 ‐ 4:40pm ET December 22, 2016 at 4:40pm ET

Hopefully you will have a nice profit in it tomorrow! http://finance.yahoo.com/m/b465d40d-30b2-3db4-abe1-957685fabf7a/ss_cintas-shares-decline-after.html

black arrow

12/13/16 ‐ 10:51am ET December 13, 2016 at 10:51am ET

Hi folks,
As you now know, I am not the sharpest knife in the drawer when it comes to Options but not the dullest either. Here is my report for those who may be interested in CTAS. I have the 20 January17 115 Put which I bt to open. reading across my line for that holding I paid 1.50 to get in. For those new to this each contract is = to 100 shares of stock. now the price is 1.63 I have a day gain of 21. @ 14.24% overall I am up 10 this is because yesterday my day 1 was a down day.

I was wondering if Skippee has found a place on his trading format called Option Chain? This will be how you can unlock you ‘new status’ all the while remembering Lao Tsu wrote: The journey of a thousand miles starts with a single step.

black arrow

12/15/16 ‐ 7:14am ET December 15, 2016 at 7:14am ET

http://schrts.co/ZGxfaa
some connotations to CTAS chart. We see bullish engulfing, bearish engulfing, hammers, and Dojis.
I will try to point these out in the large picture frame starting at lower left. On Nov 2 we see a red inverted hammer. Nov 3, we see a hammer said to hammer out the bottom. We have a 2 day pattern on 8 & 9 this is a bullish engulfing, it is when the 2nd days candles real body is larger than the previous daytime real body of day 1 in completely inside next candle. This heralds a brief uptrend. The uptrend ended where price is flagged at 109.97 it looks like a + . Hammer again two days later usually followed by uptrend. And the dog heralds a change this was on 11/28 short downtrend. then I put a rectangle on 11/30 and 12/1 another bullish engulfing. This was followed by another uptrend. Now we see consolidation [moving sideways]. Happily for us we see a dojifollowed by a BEARISH Engulfing. Bearish Engulfing heralds a downtrend is coming.
time to drop students at school.

Jim Pearce

12/22/16 ‐ 10:49am ET December 22, 2016 at 10:49am ET

greenmaster Reply
December 22, 2016 at 3:03 AM EST
To Mr. Pearce. I took your advice on CTAS. Bought some long Term Puts. I hope your right on this one. Thanks.

Jim Pearce Reply
December 22, 2016 at 9:03 AM EST
We may soon find out. Cintas releases its quarterly earnings report after the close today!

greenmaster Reply
December 22, 2016 at 9:09 AM EST
CTAS IS UP OVER $3.00 today already. I had calls programmed in my stock grid. I see I should have bought calls. The Chart I was looking at indicated a good chance of the stock heading up. Not sure what 2 do now. Thanks.

Jim Pearce Reply
December 22, 2016 at 10:26 AM EST
That’s odd. I saw the same thing you did in the pre-market trading being reported – up around 3% – but that apparently has not followed through to the U.S. exchanges as CTAS is up only slightly (+0.3%) so far. Either the pre-market data was erroneous, or someone bought a bunch of stock on an illiquid exchange that caused its price to spike temporarily.

greenmaster

12/22/16 ‐ 3:57pm ET December 22, 2016 at 3:57pm ET

Hello Mr. Pearce. I did get this 3TL. I just forgot what it was. I was concentrating on the stock. I took your advice as U may recall and bought some long term puts. K. Thanks.

Jim Pearce

12/22/16 ‐ 4:39pm ET December 22, 2016 at 4:39pm ET

Looks like I nailed it! http://finance.yahoo.com/m/b465d40d-30b2-3db4-abe1-957685fabf7a/ss_cintas-shares-decline-after.html
You may want to take a look at what those options are worth in the morning.

black arrow

12/22/16 ‐ 5:06pm ET December 22, 2016 at 5:06pm ET

Hi Jim,
You are correct as usual. Thats nice to see an even better drop after hours! My charts don’t keep going after hours but its good the moolah keeps going. Also I noticed some other holdings of ours improved toward the close.
Cheers

Larry Johnson

12/22/16 ‐ 8:32pm ET December 22, 2016 at 8:32pm ET

Mr. Jim Pearce,
If what I’m seeing right now in the after hours, I must say: I do believe that has to be some of the fastest/easiest money I think I’ve ever made anywhere in my life! And I used to think wildcat drilling for oil was risky, but at times, profitable…LOL
BTW, you don’t happen to have any more of those 3TLs just laying around somewhere not being used, do ya??? IF so, I’ll take em….LOL
Seriously, thank you for that nice Christmas present, Jim. Best wishes to you and yours this holiday season, Sir.

Jim Pearce

12/23/16 ‐ 8:05am ET December 23, 2016 at 8:05am ET

Hi Larry. I’m glad you could profit from this trade, and I should have more 3TL trades in the months to come. They are a little trickier to finesses than the straight buy recommendations since everything has to line up just right, but according to my IDEAL Stock Rating System there are currently 27 companies that earn the minimum score of ‘0’ so somewhere in there should be a few more 3TLs. I’ll spend some time looking through them next week to see if I can find one or two more for you.

Larry Johnson

12/23/16 ‐ 10:59am ET December 23, 2016 at 10:59am ET

Thanks, Jim.
I doubled my money on this one.
Normally, I make it on the rise, not the drop, so this one was a little different animal for me. It worked out though…LOL

black arrow

12/22/16 ‐ 5:02pm ET December 22, 2016 at 5:02pm ET

Hi Jim,
Today after the close we wound up with what is known as a Dragonfly Doji in candlesticks for the ‘unofficial’ put position. It has been going sideways or consolidating primarily, but now it is showing more signs of doing what we hope it will. On my CTAS 20 Jan 17 115 put I am showing a gain of 9.00 and 6.10% the cumulative is a bit less since it has not dropped each day on this strike.

Rick

12/22/16 ‐ 6:42pm ET December 22, 2016 at 6:42pm ET

Thanks Jim – you nailed it. Hopefully the losses will hold through the open in the morning because it looks sweet now.

greenmaster

12/23/16 ‐ 4:57am ET December 23, 2016 at 4:57am ET

Good morn Jim. I have been waiting all night for CTAS. At approx. 4-4:15 am, the Stock was bid down to $109.00. A whopping 11% drop. It did 1 Trade of 57,659 shares. Then it stopped trading. Bid bumped up to $111.00. As of the writing of this upadate, it is now 4:56 am and the stock is still NOT trading. Oh Boy. What a day this will be for CTAS. U hit the Nail on the head. Yesterday, I loaded up on options on this stock. Bought 71 Contacts. Puts. Yesssss!!!!!!!!!!! Thank U sir.

Gompps

12/23/16 ‐ 11:23am ET December 23, 2016 at 11:23am ET

I only bought 2 contracts of CTAS 01/20/2017 115.00 P and sold them this morning when it started back down. All in all an 84% profit (that includes the fees) in just 11 days. Thanks for the Christmas present!

Benyeh

01/22/17 ‐ 5:50am ET January 22, 2017 at 5:50am ET

Hi Jim,

I have one more question about my “long PUT” position:
I bought one contract of CTAS 01/20/2017 120.00 PUT (with $3.6 premium). The “long PUT” was expired on January 20. I did NOT choose to exercise it. Could you advise what will happen to this “long PUT” position after its expiration?

Thanks.

black arrow

01/22/17 ‐ 12:12pm ET January 22, 2017 at 12:12pm ET

Hi Benyeh,
When options ‘expire’ they are like the leaves in the fall , they are gone. Now lets say if you had sold a Put and it expired; at the moment it became sold the amount you sold it for goes into your account – But it is only if it expires “worthless” that you would keep that moolah. Worthless means the option has no value upon the close at that date. So if you bought the put then it means some unknown entity Sold it to you. Your money you paid went into their account.

If you thought there was some profit you could enter SELL TO CLOSE. In the comment below notice Gompps sold his contracts. With Options you must active;ly watch what is happening. If you are new to Options, it is better if someone tells you what actions to take. Someone like Jim Fink for instance.

Jim Pearce

01/23/17 ‐ 9:38am ET January 23, 2017 at 9:38am ET

Your broker will (should) automatically credit your account with that option’s ending value. Since it expired on Friday, that amount should be equal to the “intrinsic value” of the option (strike price minus share price on expiration date). CTAS closed on Friday at $113.88, so the intrinsic value is $6.12 (that means one put contract of 100 shares should be worth $612), which is about 70% more than what you paid for it. Well done!

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