Hey Traders,
Some of 2021’s biggest trends will be formed by two influences …
(1.) The opening up of the economy and (2.) the Biden administration.
Let’s start with opening up the economy …
Good news for many. BAD news for the stay-at-home trade.
While there are stocks that will be fine, like AMZN, others have a ton of risk associated with them.
Outside of TSLA, I think the riskiest stock in the entire market is Zoom.
We use ZM at Option Pit for our small meetings … but we have dropped it as our application for webinars because there is better technology out there.
More importantly, I think people are sick of using it, period, and will move back to in-person meetings as soon as they possibly can.
I know I can’t wait to use the product less.
Not to mention, the stock is up 400% in the last year and its current valuation is $115 billion.
What everyone touting work-from-home stocks won’t tell you is …
In a normal economy, ZM is nowhere close to a $100 billion company.
ZM is going to be sub 250, probably sub 200, by this time next year.
So I would be a buyer of puts via a butterfly …
The ZM Jan 2022 300-200-100 put butterfly (buying 1 300 put, selling 2 200 puts and buying 1 100 put) cost 20 dollars, I think it will be worth 50 by mid year.
Here is what a bear butterfly looks like in a risk chart:
Moving right along …
The New Administration
When it comes to the Biden admin, I think the biggest risk will come from the Department of Labor.
In Option Pit’s recent DC-focused webinar series, Beltway insider Frank Gregory made special note of President Biden’s pick to lead the Labor: Boston Mayor Marty Walsh.
Walsh is arguably the most pro-union appointee President Biden could have picked …
This spells bad news for a name like Amazon that has done everything possible to avoid unions.
That said, Amazon will be fine … the company is just too good from top to bottom.
Do I think returns will be slower? Yes, but I would never be short AMZN as a long-term trade.
UBER, LYFT, DASH and GRUB though …
These companies use the “gig” model that allows them to 1099 everyone that works for them.
Last year, California passed a law turning workers at these companies into W-2 employees (more on that in a second).
Such a regulation changes the entire treatment of employees across the board, from taxes, to unemployment, to medical.
We all know Uber, LYFT and co. want to use self-driving cars instead of people. This would save them from bearing the brunt of a change in employment status laws.
However, I think we are probably further away from widespread use than people might suspect.
Yes, TSLA can run on autopilot …
That ain’t the same as driving in Manhattan. (I’m walkin’ here!)
If regulations make UBER, LYFT and DASH workers W-2 employees, these companies are going to get WORKED in the near term.
It took a $200 million campaign to pass Proposition 22, the costliest ballot measure in California history, to exempt Uber and others from classifying their workers in the state as employees instead of independent contractors.
And take a look at what Uber did when Prop 22 passed …
UBER jumped over almost 20% and is up 20 dollars since the measure went into effect.
But app-based companies will not be able to run an extensive prop campaign on a government regulation change.
I love UBER and LYFT long term (not so much DASH).
I would be a bear put buyer in all of these names.
Let’s look at DASH, though, because I also hate the business model. (Restaurants are already trying to avoid using DASH at all costs because they are so expensive to work with. And on a personal level, I’m convinced there is no way to transport french fries for delivery without them getting soggy.)
The 150-75 put 1 by 2 in DASH costs 19.25.
I do NOT need a downside put because the completion of a regular butterfly would be buying the 0 strike. Thus it should have the same margin as a butterfly.
I think DASH will be sub 100 this time next year.
It is this generation’s Pets.com.
Obviously there are names like TSLA and GME that I think are overpriced, but I am not going to dig into those because I think everyone knows they are too expensive.
The names I mentioned above, however, are probably some ideas that traders haven’t thought about.
Your Only Option,
Mark Sebastian
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