3TL Alert: Scripps Networks (SNI)

By Jim Pearce • February 13, 2017

TRADE INSTRUCTIONS
Date: February 13, 2017
Name: Scripps Networks Interactive
Symbol: SNI
Type: Short Sale or Long Put
Limit: N/A

THIS IS NOT A BUY RECOMMENDATION!
3TL stand for 3-Time Loser, which means 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 or 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 reason it will not be tracked in our portfolio. This trade is not a substitute for our usual buy recommendation, but is simply an extra “bonus pick” for you to consider. Here’s why this stock qualifies as a 3-Time Loser according to my system.

TRADE RATIONALE
As someone who watches HGTV with a religious fervor, there is an almost heretical aspect to this trade for me. But I get paid to help you make money in the stock market, so I have to park my emotions at the door and call ‘em like I see ‘em.

As much as I love watching “Love It Or list It”, my IDEAL Stock rating system does not love what it sees in SNI giving it the lowest possible score of 0 (on a scale of 0 – 10). That means it appears grossly overvalued from a long term, fundamental perspective based on dividend yield, cash flow and relative valuation.

Second, SNI has been trading above its upper Bollinger Band for the past few days, and it its 50DMA is trading at its lower Bollinger Band so it also appears overvalued from a short-term, technical perspective.

Third, 97% of its stock is held by institutional investors, leaving very little float for everyone else. During the most recent quarter company insiders sold over 3 million shares, while at the same time institutional investors bought 2 million shares.

So what does company management know that the institutional investors don’t? It could be nothing more than the fact that SNI has increased in value by 30% over the past six months and they want to cash in, but that only gets the stock back to breakeven from a longer term perspective so not much gain there.

My guess is the same elements that worked in SNI’s favor during the third quarter – healthy growth in advertising sales and distribution revenues – will work against it this time. At the end of the prior quarter the company projected full year revenue growth of 12% and adjusted segment profit growth of 8%, but those projections were made one week prior to Trump’s unexpected victory and subsequent rise in the U.S. dollar.

That’s bad news for SNI, which derives approximately 15% of its total revenue overseas and may have to mark much of it down. We will soon know if my hunch is proven correct; SNI reports earnings next week (before the market open on Tuesday, February 21), so anything less than a stellar report and strong forward guidance may be met with a flurry of sell orders.

MEET ME IN DC
If you make enough money off this trade to buy airfare to Washington DC, join me and all of our other analysts at our exclusive Investing Summit on April 6-7 where you can thank me personally. More importantly, we’ll share our Top Picks for 2017 for the first time with just you and a handful of other serious investors. I look forward to meeting you, so reserve your seat now!

Stock Talk

Comments Oldest First

Comments Guidelines

Larry Johnson

02/13/17 ‐ 8:33pm ET February 13, 2017 at 8:33pm ET

Jim, are SW’ers and OFI’ers part of the “Wealth Society” automatically; or is that something else? Just curious.

black arrow

02/13/17 ‐ 11:03pm ET February 13, 2017 at 11:03pm ET

Sum thin else Larry

Larry Johnson

02/14/17 ‐ 9:07am ET February 14, 2017 at 9:07am ET

Tnx., b a.

Jim Pearce

02/14/17 ‐ 10:01am ET February 14, 2017 at 10:01am ET

Wealth Society allows access to all of our services, but not vice versa. If you already subscribe to VT and SW then you may want to consider joining Wealth Society, since the incremental cost of obtaining access to everything else may be worth it to you.

Rick W.

02/14/17 ‐ 9:14am ET February 14, 2017 at 9:14am ET

Jim,
It would be nice to have a little more meat on the bone regarding your long put calls.
Rick

Jim Pearce

02/14/17 ‐ 10:38am ET February 14, 2017 at 10:38am ET

We do not provide specific options advice for our long or short calls, but several SW subscribers are sophisticated options traders and are willing to share their strategies with you so you can follow the dialogue on this page to see how some of them are playing it. My personal inclination would be to but puts slightly in the money that expire within three months to keep the premium reasonable, but the beauty of options is you can tailor each trade to be as conservative or aggressive as you like.

Rick W.

02/14/17 ‐ 4:29pm ET February 14, 2017 at 4:29pm ET

Thanks Jim, that gives me another way to look at it.

Jim Pearce

02/14/17 ‐ 4:38pm ET February 14, 2017 at 4:38pm ET

You’re welcome. Several of our subs have already shared their options strategies above, all of which make sense so its really a matter of picking one that suits your personal risk profile. Good luck!

Skippie2000

02/14/17 ‐ 9:17am ET February 14, 2017 at 9:17am ET

If someone has placed the option trade, could you spell out the details of the transaction so I can better understand the trade. Thanks.

HowieA

02/14/17 ‐ 11:04am ET February 14, 2017 at 11:04am ET

I bought SNI March 17 80 Puts for $4.30 this morning.

Larry Johnson

02/14/17 ‐ 11:10am ET February 14, 2017 at 11:10am ET

Hi Skippie.
From what Jim has told us, it is very likely that this stock is going to go down in value, probably right after the earnings come out on 2/21/2017. PUTS will increase in value on the drop of any stock. So with that knowledge, a trade can be structured to make a profit on that stock drop/PUT increase situation. I always try to buy options at the least possible price so that I can achieve as much gain as possible (selling them, I obviously want to get the highest price possible). With SNI trading around $76-$77 right now, I bought two March $70 PUTs for around $.70. I could have spent 3 times as much and bought the March $75 PUT, but I’m kinda cheap…LOL. When the stock drops, the value of the PUTs should rise just as dramatically as the stock drops, if not more so. I have to keep an eye on it, especially the day the earnings are announced, and sell the PUT on the big drop that day…hopefully…for a nice tidy profit. Obviously, this is NOT a “long-term buy & hold” trade by any means, but one should be able to make a profit on this stock drop. Timing is everything on this type of trade because once the drop starts, the values can change really fast and I obviously want to try to sell the PUT at it’s highest value.
Dunno if any of that made sense to ya, but that’s my strategy on this kind of trade. There’s probably a dozen ways to play it, but that’s my approach on it. I hope this helps ya.

black arrow

02/14/17 ‐ 12:46pm ET February 14, 2017 at 12:46pm ET

Larry,
I think you have done a Sterling job of explaining this to Skippie. Just so he knowsI tried the March 75 and it is making some moolah already I also tried the 70 in another account. Now it looks like Howie’s itm now [In the Money] so that is OK too.

There may be a dozen ways to do it, but recently I was reading by someone who has successfully traded options for years just using the calls or puts works well.

Rick W.

02/14/17 ‐ 4:26pm ET February 14, 2017 at 4:26pm ET

Larry,
Thank you for your explanation. I did the same thing you did for what sounds like the same reasons. Are we related?? (Smile) I am only willing to risk .5% of my portfolio on these trades so the low price makes sense to me because I can buy multiple contracts which allows me to unload some, not all, if I think it makes sense.
I have 3 accounts and placed the exact same order at the exact same time and wound up with fills of .61, .61 and .85 on March $70 PUTS. I wish I knew how to get the lower fill all the time. Have a great day!
Rick

Maria R

02/14/17 ‐ 4:50pm ET February 14, 2017 at 4:50pm ET

Thank you,Larry. Next 3TL I will try that strategy. I cannot monitor my trades these days as I am traveling.

Derek: Las Vegas, NV

02/14/17 ‐ 1:29pm ET February 14, 2017 at 1:29pm ET

Hi guys,

Here is a good article on Implied Volatility going into earnings. This should give you a better understanding on how to play/pick your option trade.

http://www.investors.com/research/options/implied-volatility-around-earnings-reports/

Derek

black arrow

02/14/17 ‐ 3:41pm ET February 14, 2017 at 3:41pm ET

Hi Derek,
I am sure that has usefull info on options Thanks for sending it along.
Just curious were you able to get the 10 day thing, if so I could give some suggestions where to look. hope you and yours have a nice Valentines day.

I think I may have some company and need to get somemore stir fry beef,
Hasta,
BA

Derek: Las Vegas, NV

02/15/17 ‐ 2:48am ET February 15, 2017 at 2:48am ET

Hey, I didn’t sign up for the trial yet. I’ve been extremely busy, so once I have a little more time I will sign up.

How was the beef stir fry? lol

Derek

black arrow

02/15/17 ‐ 10:13am ET February 15, 2017 at 10:13am ET

BFS was Yummy.
Only reason I was checking was I could steer you in some areas of interest.
like today Tom Bowlet at noon 30 minutes but ya need to register if interested. Ahh just heard the chimes of XLB calls bringing in a small profit
Cheers from the guy who does most of the cooking

Frank B. Las Vegas

02/20/17 ‐ 8:25pm ET February 20, 2017 at 8:25pm ET

Hi Derek, Thank you for Implied Volatility article. Helpful!
Frank B.

Kurt D

02/14/17 ‐ 2:04pm ET February 14, 2017 at 2:04pm ET

Call debit spread
BTO march 75 call
STO march 80 call
net debit 2.25

Michael Dunn

02/15/17 ‐ 9:24am ET February 15, 2017 at 9:24am ET

Jim, Hope to see the Summit in central US some day. Ft. Worth or Dallas would be great.
Air cost to DC from my area is really high.
Mike Dunn

Jim Fink

02/15/17 ‐ 9:49am ET February 15, 2017 at 9:49am ET

Nonstop AUS to DCA is only $413.88 roundtrip on Southwest:

Leave at 12:30 PM on Wednesday April 5th on Flight #223

Return at 3:40 PM on Saturday April 8th on Flight #2729

Jim Pearce

02/15/17 ‐ 9:53am ET February 15, 2017 at 9:53am ET

Then buy more puts on SNI! 🙂

Michael Dunn

02/15/17 ‐ 12:18pm ET February 15, 2017 at 12:18pm ET

Just bought 3 March 70 at .48..
Hope this makes a down payment on my ticket
Mike

Michael Dunn

02/22/17 ‐ 9:40am ET February 22, 2017 at 9:40am ET

Jim P.
With SNI Continuing up, should we hold our puts and hope for a reversal or take the loss.
Mike D.

Jim Pearce

02/22/17 ‐ 10:27am ET February 22, 2017 at 10:27am ET

My thesis for shorting the stock was that a decline in quarterly earnings would push the stock lower, but since the second half of that supposition has not occurred I don’t see what is likely to drive the stock down anytime soon. I still think it is overvalued, but until the next set of quarterly results is released I see no reason why the stock would suddenly fall out of favor. So, you may want to roll that position for another 90 days, but I wouldn’t double down on it.

Larry Johnson

02/15/17 ‐ 10:40am ET February 15, 2017 at 10:40am ET

I’m sort of in the same boat, Mike. I’ve been pretty stingy with my money lately since selling my business and retiring from drilling for oil in Texas…LOL.
However, IF I can suck a few pesos off of a couple of these upcoming trades, I may “pull the trigger” and go. I would love to meet these two guys in person, if for nothing else, just to personally say; “Thank You”. I’ve really learned quite a bit from both of them over the past few months.
We’ll see what happens.

Michael Dunn

02/15/17 ‐ 10:54am ET February 15, 2017 at 10:54am ET

I wasn’t born in Texas, but I got here as soon as I could..
Are you near Georgetown. I taught a seminar on intro to Options at our Investment education club here in Sun City. Signed up 4 new guys for OFI.

We should have a summit for Texas Investing Daily subscribers.
Mike Dunn

Larry Johnson

02/15/17 ‐ 11:12am ET February 15, 2017 at 11:12am ET

I’m actually 35 miles outside of Lake Charles, LA on a few acres out in the country. Worked as a senior engineering field consultant for the past 5 years to a couple of oil companies based out of Dallas down in the Eagle Ford formation in south Texas. Finally had my belly full and bailed out. Wanted to learn to trade options and trade a few stocks so I became both an SW and OFI subscriber….have not regretted joining either one.
IF you have a summit over there, let me know and I’ll try to attend.

Jim Pearce

02/15/17 ‐ 11:53am ET February 15, 2017 at 11:53am ET

It could happen. My boss went to college at Tulane, and another member of our senior management team is from New Orleans so it probably wouldn’t be too difficult to persuade them to hold one down there one year.

Larry Johnson

02/15/17 ‐ 11:25am ET February 15, 2017 at 11:25am ET

BTW, SNI is up today. Up enough that the March $75 PUT is priced a little better than it was yesterday so I picked one up this morning.

Jim Pearce

02/15/17 ‐ 4:03pm ET February 15, 2017 at 4:03pm ET

Same thing happened with AAP, but that trade ultimately paid off once earnings came out so hang in there.

Derek: Las Vegas, NV

02/15/17 ‐ 9:06pm ET February 15, 2017 at 9:06pm ET

A round trip ticket from Vegas wasn’t bad, I think I only ended up paying around $320. Hopefully, I see everyone in DC…

Derek

black arrow

02/17/17 ‐ 1:47pm ET February 17, 2017 at 1:47pm ET

Hi Derek,
I have a dumb question on a put in connection with SNI. I havea &% strike PUT on SNI
expires in March currently it has a day gain of $89.00 if and when the underlying stock reaches $75, will this Put have reached the MAX it will be worth?
I do have another in my IRA at 70 in case it gets the snowball effect – a lot of snowballs outside here in VT!

Derek: Las Vegas, NV

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

No, the put option will continue to rise in value as it falls to and below $75.

Sorry for the late response, I haven’t checked in for a few days.

Derek

Rick

02/21/17 ‐ 12:44pm ET February 21, 2017 at 12:44pm ET

Try Southwest to BWI – much cheaper than either Dulles or Reagan.

Jim Pearce

02/21/17 ‐ 10:13am ET February 21, 2017 at 10:13am ET

SNI released earnings this morning (http://finance.yahoo.com/news/scripps-networks-misses-4q-profit-122439005.html). I was right about it coming in below earnings expectations, but the stock is up in early morning trading nonetheless. Revenue across the board was higher, so it appears investors believe that will translate to greater profits later on. But let’s see if that optimism prevails in the days to come to see how analysts react after parsing through the numbers.

Press Release: http://finance.yahoo.com/news/scripps-networks-interactive-reports-full-120000743.html

John Elgin

02/21/17 ‐ 10:31am ET February 21, 2017 at 10:31am ET

Great. I just bought at the money puts to add to my short position. With stop at 83.10.

Add New Comments

You must be logged in to post to Stock Talk OR create an account