Another retail name has been hit…
The GameStop news continues to get worse.
The retail sector continues to stumble. And GameStop is the newest victim of the struggle.
Recently, on the GameStop earnings call, the company explained that it would be closing between 400 and 450 stores globally over the next year. That’s more than 320 stores than GameStop originally planned to in March.
These closures were surprising, seeing that in the second quarter, online sales soared 800% thanks to the lockdown in place. This 800% increase amounted to about 20% of its total sales. However, revenue fell below analysts’ expectations, and same-store sales declined 12.7%.
Where’s the money?
These numbers are grim for GME, but it’s painting a much bigger picture. Because this disappointing earnings report paired with the store closure proves how badly retail is performing during the pandemic as shoppers shift their habits online.
And even with the pandemic keeping people locked inside their home, even with the announcement of two new gaming systems, GME still couldn’t find stable ground. And in return, they are being forced to close hundreds of stores in the process.
This means one thing: every single retail store is in jeopardy as Amazon’s domination continues. And that’s giving me the green light to bet against the whole sector. That’s why I’m looking to buy out-of-the-money puts in XRT.
How can I get some?
Now, with such high volatility in the market, options premiums can get a little out of control. The heightened uncertainty is forcing the price traders pay for options up, making the risk to reward ratio of merely buying an option less appealing.
It’s times like these where a spread trade strategy is particularly useful…
By buying one option and selling another (in the same transaction), we can help defray the cost of entering an options trade while maintaining an acceptable risk to reward ratio.
For me, I’m looking at a Spread trade on SPDR S&P Retail ETF (XRT),
Here’s how I’d play it…
Buy-to-Open XRT December 18, 2020 $45 put and Sell-to-Open XRT December 18, 2020 $40 put, creating a vertical put spread for a $0.90 debit. If you agree, all you have to do is tell your broker that you want to buy-to-Open XRT December 18, 2020 $45 put, and Sell-to-Open XRT December 18, 2020 $40 for a $0.90 debit, and just like that, you’ve got skin in the game.
In the spotlight: Another name is coming to the electric vehicle sector
Special purpose acquisition company Tortoise Acquisition Corp. and electric truck company Hyliion will be voting on a merger on Sept. 28. If this merger happens, we’ll see yet another electric vehicle name entering the market.
Once the deal closes, the combined company will be known as Hyliion Holdings Corp., and it will trade on the NYSE under the ticker HYLN. Through the merger, Hyliion will receive $560 million, which will accelerate product commercialization. The company says it will have some vehicles on the market by 2021, followed by volume shipments in 2022.
In June, Hyliion announced a preorder of 1,000 trucks from logistics company Agility, which is also taking an equity stake in the company.
Hyliion aims for total revenue of $344 million in 2022, $1.019 billion in 2023, and $2.091 billion in 2024. Earnings after adjustments is forecasted to be $8 million in 2022 to $602 million by 2024. As we know, the electric vehicle industry is said to be the future, so seeing more names come into it isn’t a surprise. But with that said, I want to keep a close eye on this possible merger, the company’s future, plans, and the growth progress before I add this one to my lineup.
One Last Thing…
Hyliion didn’t hit my radar because it’s a big name… in fact, I’ll bet most people have never even heard of it.
It caught my eye because it tripped some the indicators I created for my S.C.A.N. trading algorithm.
My proprietary system has delivered thousands of extra dollars per week to readers, and if all goes according to plan, Hyliion has all the makings of the next big winner.
But that’s not the only play I’ve uncovered…
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