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Winning Picks Premium Trade Idea #596

  For Educational Purposes Only  

*** The February Case in California is coming up in a couple of weeks ***

December 23, 2022

Trade Idea: GSK $35.31 (GSK Plc.)

Buy May 19th $38 Calls $1.40

TI GSK chart Winning Picks 122322

This is an easy one to understand.

From mid-July through September, GlaxoSmithKline (GSK) declined dramatically from $50 to $29 on lawsuits filed against them claiming that Zantac caused cancer.

In 2019, an independent laboratory sounded the alarm that Zantac‘s active ingredient ranitidine could be contaminated by NDMA, a substance used to induce cancer in lab rats and therefore likely carcinogenic to humans as well.

“Likely” is usually not strong enough in court. The FDA has since done further testing:

The FDA’s tests ultimately found lower NDMA levels in Zantac than the independent lab that had raised the alarm, but the agency concluded the substance was still present at unsafe levels.

Does “unsafe” mean that it causes cancer?

This is the multi-billion question the plaintiffs must prove. GSK says:

Based on these investigations and experiments, GSK, the FDA, and the EMA have all independently concluded that there is no evidence of a causal association between ranitidine therapy [this turns into NDMA] and the development of cancer in patients.

The Courts

On December 7th , a Federal judge in Florida dismissed thousands of lawsuits related to claims that Zantac caused cancer on the basis that the Plaintiffs lacked scientific evidence proving such claims.

Here’s one lawyer’s summary:

The gist of the judge's opinion is that the plaintiffs' lawyers were unable to present enough good science to prove that Zantac caused cancer. She found the plaintiffs' experts used "unreliable methodologies" in concluding that the NDMA in Zantac caused cancer.

GSK jumped almost 14% on the news, but has given most of those gains back as the case moves to the individual States.

There are two cases, California and Illinois, scheduled to begin in February.

How much will the States be influence by the Federal Court’s decision?

The Trade

Since December 12th, Call buyers have continuously showed up in GSK. They have bought almost 28,000 GSK February 17th $38 Calls for as much as $1.25.

It appears that they are targeting those cases moving to the States. California starts on February 13th.

Earnings are also on February 1st. Keep in mind that the stock is worth a lot more without this Zantac overhang. So, fundamentals take a back seat here to the outcome of these cases.

Steve Cohen at Point 72 Capital has beefed up his position with GSK Stock and Calls going into September 30th. It’s his 9th largest position. I suspect it is him buying these calls.

The February 17th options expiration is certainly cutting it close to get a decision, unless the thought is that GSK would use the Federal decision to settle the case and put it behind them.

I like the GSK May 19th $38 Calls for $1.40. Target Stock Price Range is $43-$44. With patience we are paying slightly more but receiving 3 months more time.




This presentation is for educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy. Past performance does not indicate or guarantee future success. Returns will vary and all investments involve risks, including loss of principal.


Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker, The Options Industry Council at One North Wacker Drive, Chicago, IL 60606, or by visiting www.OptionsEducation.org.

 

Felix Frey Is not registered as an investment adviser nor a broker/dealer with either the U.S. Securities and Exchange Commission or any state securities regulatory authority. All users of this video and/or website must determine for themselves what specific investments to make or not to make and are urged to consult with their own independent financial advisors with respect to any investment decision. The viewer bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analysis and information included on this report, video and/or website are based on sources believed to be reliable and written or produced in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, I undertake no responsibility to notify such opinions, analysis or information or to keep such opinions, analysis, or information current. Also be aware that owners, employees, writers, or producers of and for Felix Frey or OptionsGeek,LLC. may have long or short positions in securities that may be discussed on this report, video and/or website. Past results are not indicative of future profits.

Winning Picks Premium Trade Idea #562

  For Educational Purposes Only  

August 30, 2022

Trade Idea: FLR $27.32 (Fluor Corp)

Buy January 20th $30 Calls $2.40

TI FLR Stock chart Winning Picks 083022

I saw 10,000 call spreads bought in Fluor (FLR) last week, which piqued my interest.

  • First, it doesn’t trade that much.
  • Second, it’s a company involved in infrastructure building, particularly in the energy sector.
  • And third, the chart looked interesting.

Under further investigation, FLR looks really interesting.

Nuclear Energy

I found out from the Earnings Call and their Annual Report that FLR is a majority owner of NuScale (SMR), a small nuclear energy company that is on fire, up 50% in the last 6 weeks!

From the FLR 2021 Annual Report:

In December 2021, we announced that NuScale, in which we are the majority investor, signed a merger agreement with Spring Valley Acquisition Corp., a special purpose acquisition company ("Spring Valley"). Spring Valley is acquiring an approximately 20% interest in NuScale. The proposed transaction is anticipated to close in the first half of 2022, subject to customary closing conditions. Upon completion of the merger, we estimate that we will own approximately 60-70% of the combined company and expect that we will continue to consolidate it.


From the Earnings Call Slides:

TI FLR Earnings SMR Stock chart Winning Picks 083022


FLR vs SMR Size

FLR’s market capitalization is only $3.88BN, with a rock solid balance sheet as well. The company has $2Bn in Cash with $1Bn in Long-term debt.

So, I was surprised to see they own 57% of a company with a market capitalization of $3.22Bn, valued at $1.83Bn.

TI FLR SMR Stock chart Winning Picks 083022

A Timeline of Events

Digging in a little more, I saw that NuScale merged with a company back in December, 2021. the deal closed in May.

May 3rd - NuScale and Spring Valley Acquisition Corp deal closes. Click Here

Right after the deal closed two FLR directors came in to buy more than $1.75mm worth of stock in the open market.

May 10th – Director James Hackett buys 30,000 for $25.46.
May 12th – Director Matthew Rose buys 40,000 for $25.63.

Then on the August 5th Earnings Call, we see these statements from the CEO and CFO:

Chairman and CEO David Constable made these comments in his opening statements:

We continue to see tremendous support and interest in NuScale since its SMR listing in early May. After investing in NuScale for over 10 years and as NuScale's largest investor, it's encouraging to see that the market agrees that there is significant value in NuScale and their carbon free Clean Energy Solution. Based on recent prices, our 57% investment is approaching $2 billion in value.

FLR CFO Joe Brennan followed with this comment:

Since the beginning of 2021, we have been clear that our intention long term is to own approximately 20% to 25% of NuScale. Currently, we are under a dispatch related lockup period that started in early May. As such, we feel that is premature to provide additional detail on our plans at this time.


One Important Date

There are two key statements made by the CFO.

  • They are trying to get to 20-25%.
  • They are in a lock-up period right now.

I wanted to figure out more about the lock-up period, specifically when it expired.

According to FLR’s 13D filing:

Fluor Enterprises signed a Lock-up Agreement on December 13, 2021, a form of which is referenced herein as Exhibit 9 and incorporated by reference. Pursuant to the Lock-up Agreement, Fluor Enterprises has agreed, subject to certain exceptions, not to (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, any shares of Class A Common Stock held by Fluor Enterprises or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of its shares, whether any such transaction is to be settled by delivery of such securities, in cash or otherwise or (iii) publicly announce any intention to effect any transaction specified in (i) or (ii) until 180 days after May 2, 2022.

The Trade

It’s now clear why we're seeing Call buyers in January.

The big buyer, Masters Capital, is in the following:

  • 10,000 FLR January $25 Calls 
  • 10,000 FLR January $32.50 Calls 

Just last week (August 24th), he rolled down from the $37.50 Calls into the $32.50 Calls.

These Call buys along with the Insiders taking a $2mm stake in May are all pointing to an undervalued stock with a “nuclear” gem. The recent positive news on nuclear energy should begin to bring this story to the forefront.

In other words, while the market is excited about SMR, it may not be clear that FLR owns 57%.

The lock-up expires on November 2nd and I suspect they will make some announcement soon after to offload some stock to get them closer to 20-25%.

Earnings happen to be around November 4th.

Why is the stock seemingly so cheap?

Like many of these commodity companies, a recession can hurt them.
However, owning a ~$2Bn asset with recent “nuclear” momentum tilts the risk-reward in our favor here.

I like the FLR January $30 Calls for $2.40. The Target Stock Price is $40.





This presentation is for educational purposes only and is not a recommendation or endorsement of any particular investment or investment strategy. Past performance does not indicate or guarantee future success. Returns will vary and all investments involve risks, including loss of principal.


Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options involve risks and are not suitable for everyone. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by contacting your broker, The Options Industry Council at One North Wacker Drive, Chicago, IL 60606, or by visiting www.OptionsEducation.org.

 

Felix Frey Is not registered as an investment adviser nor a broker/dealer with either the U.S. Securities and Exchange Commission or any state securities regulatory authority. All users of this video and/or website must determine for themselves what specific investments to make or not to make and are urged to consult with their own independent financial advisors with respect to any investment decision. The viewer bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analysis and information included on this report, video and/or website are based on sources believed to be reliable and written or produced in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, I undertake no responsibility to notify such opinions, analysis or information or to keep such opinions, analysis, or information current. Also be aware that owners, employees, writers, or producers of and for Felix Frey or OptionsGeek,LLC. may have long or short positions in securities that may be discussed on this report, video and/or website. Past results are not indicative of future profits.

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