|Editor’s Note: In today’s issue, Shah gives an exclusive look into Zenith Trading Circle’s latest trade. If you are interested in seeing what other privileged information Zenith members are getting, click here to learn more.|
On June 7, I laid out the case for buying put options on Fossil Group.
I started the piece with, “According to Wikipedia, fossils (from Classical Latin fossilis; literally, “obtained by digging”) are the preserved remains or traces of animals, plants, and other organisms from the remote past. The totality of fossils, both discovered and undiscovered, and their placement in fossil-containing rock formations and sedimentary layers is known as the fossil record. That’s amazingly close to the definition I’d give the once-trendy watch and accessories purveyor turned dinosaur crap retailer, Fossil Group Inc. (NASDAQ:FOSL).
At least we can give them foresight credit for getting their name right.”
You can read, or re-read, the dirt on Fossil right here, and you should. We made a 100% gain on our FOSL puts position in my Zenith Trading Circle member newsletter service, and you should have made a bundle on the puts I recommended for you too.
Well, we’re going to do it again.
How to Carbon Trade Fossil
The strategy we use is a “carbon trade.” In Zenith, we carbon trade successful trades over and over again, usually banking repeat paydays, again and again.
After banking a 100% gain on the previous July 21, 2017 $10 puts we had on FOSL, yesterday I had my Zenith members buy FOSL September 15, 2017 $9.00 puts (FOSL170915P00009000). We paid $0.61 for our puts, and they are currently already up a nice percentage.
But that isn’t the trade I would recommend for you. Wall Street Insights & Indictments readers can find an exclusive take on this trade below.
Regardless, that’s the essence of a carbon trade. We had $10 puts and made a bundle on them when the stock went down. Now that the stock is lower, we bought $9.00 puts. That’s how we roll.
The reason we carbon traded this position, besides the fact that it was a moneymaker, is because on top of everything I told you about Fossil in my June write-up here, things aren’t any better at Fossil… They’re worse.
I’ll tell you exactly what I told my Zenith members about where Fossil is today and why we put on another put trade.
It’s because their sales are soft.
Because their watches lines are in trouble.
Their licensing deals are getting more expensive, and competition is swamping them as other watch manufacturers and outlets are discounting their offerings, forcing FOSL to discount and rip into its margins.
Speaking of margins, FOSL’s gross margins are down 300 basis points in their fiscal first quarter.
Their leather goods aren’t selling because they haven’t changed inventory that’s getting stale.
The dollar exchange rate is hurting them. It’s lower against a bunch of currencies in which FOSL buys sourced goods, making them more expensive to buy.
Which means they have to raise retail prices, which they can’t do, which means their margins will come under even more pressure.
Foot traffic in all their full-price retail stores is down, bigtime.
And last but not least, analysts are furiously cutting earnings estimates.
That’s why we bought more puts. And that’s why I recommend you get yourself some.
How You Can Get Into These Profits
We’re in the September $9 puts, and so far they’ve traded as high as $0.82 today. You can buy those, but honestly, you’ll be buying them after we already did. If you pay up for them we’ll be temporary beneficiaries of your buying.
That doesn’t mean we’ll all get out with a big win. I’m just being open with you that buying the puts we bought yesterday at a higher price than we paid makes our position temporarily look better.
Another way, and an equally good way to carbon trade FOSL for WSII readers is to buy the November 17, 2017 $9.00 puts (FOSL171117P00009000). They’re more expensive, but you’ll have more time for the stock to go down.
Since Zenith members are in the September puts, they’ll have until the expiration date in September to make their money.
If you buy the November puts (which, by the way, we will probably buy ourselves when we take profits on our new September puts), you’ll have a couple extra months to watch FOSL stock plunge so you can rake in your profits.
While I’m not going to give you all the giant trades we make in Zenith Trading Circle, I will from time to time let you know how we’re doing, what we’re doing, and what you might want to do yourself.
Why? Because I can.
And now you can, too.