An Interesting Week

Last week was unusually eventful.

Just last week I wrote about Walgreens Boots Alliance (WBA). I argued that the stock might be worth north of $90. On Monday, the stock drifted below $65, and I wrote a bunch of puts (1 7/13 $67.50 , and 2 6/22 $65) to pocket a premium of $550. We then learned that WBA had replaced GE in the DJIA. This bumped the stock above $67, and I closed the $65 weeklies. The $67.50 put is still open, and I will figure out what to do about it in July.

ALJJ, which has caused me a fair amount of heart burn, by falling over 60% from a 52-week high of $3.75 to a 52-week low of $1.42, finally seems to have turned a corner sometime two weeks ago. Last week, it put on a couple of impressive gains on strong volume, following more insider buying in the $1.50-$1.60 range. At the end of the week it had rallied over 35% from the low to end at $1.94. Six months to a year out, it is not hard to see this near $3.

Finally, GME confirmed rumors of a buyout, which pushed the stock above $15, a gain of about 20%. GME’s current cash flow is over $3/share. With a conservative 7-8x multiple given the less than stellar future business prospects, we could easily see a buyout over $20. With about 40% short interest, it is possible that GME will finally catch a thermal lift.

The stock has been battered over the past year, falling from $22 in August 2017 to nearly $12.50 in late March. Since then, it has rattled between $12.50 and $14. In my last update, I figured GME was still worth between $12 (bear case) and $25 (base case), and it is quite possible that the take out price will be closer to the base case than the bear case.

I have a small (1.5%) position in GME, accumulated at an average price of $15.80 after accounting for the dividends, and options written. I wrote ATM calls on about half my position, to hedge my bets and sell the enhanced implied volatility.

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