From $4 to $40 in One Night – How to Play This ETF’s Reverse Split

This morning, the ProShares Ultra VIX Short-Term Futures ETF (BATS:UVXY) opened at $40. Yesterday, it closed at $4. What happened? Well, this ETF underwent a reverse split – one that could lead us to our next asymmetrical return. And tomorrow at 2 p.m. sharp, I’m going live to explain exactly how. Click here to register.

What Nordstrom’s Earnings Miss Means for Our Call

After yesterday’s closing bell, Nordstrom Inc. (NYSE:JWN) reported earnings.

First, the good news – the retailer reported total revenue of $3.01 billion, beating analyst expectations of $2.90 billion.

Net sales were also up 44% from the year prior. But in half of Q1 2020, stores were closed. And when you look to 2019, Q1 net sales were 13% higher than JWN saw this year…

Bringing me to the bad news.

Analysts expected a loss of 57 cents per share. But JWN reported a loss of $1.05 per share, or $166 million.

What about the future? Well, JWN’s biggest competitors, Macy’s Inc. (NYSE:M) and Kohl’s Corp. (NYSE:KISS), recently hiked their outlooks in their Q1 earnings reports.

JWN, however, kept its the same. And shares opened about 7% down this morning.

So… what does this mean for our January 2022 $40 call?

Right now, our JWN January call is at about a 45% loss.

Now, I’m not going to lie – this earnings report stunk.

And when the story changes on a stock, I’m not afraid to take a loss on a position. Remember Pfizer?

That said, JWN’s story hasn’t changed. The world is growing closer and closer to “normal” every day. People want to get out – they want to buy new stuff. They want to go to the mall and buy dresses for parties, suits for work, shoes for school. And that will drive JWN sales up through Q2 and beyond.

Retail is the new FAANG, remember?

The only worry I have is the poor performance in JWN’s discount store, Nordstrom Rack.

While the Rack’s rivals, like TJX Companies Inc. (NYSE:TJX) and Ross Stores Inc. (Nasdaq:ROST), have returned to pre-pandemic sales levels, Nordstrom’s discount store’s numbers for Q1 remain 13% below that of 2019.

Now, I think this will turn around as the year goes on and the economy continues opening back up. But if the sales at Nordstrom Rack stay poor, that’s when I’ll get concerned.

For now, we’re going to continue to hold our call position through this storm. It doesn’t expire until next year – as I said before, we’re in it for the long haul.

It won’t take long for this 45% loss to turn into an asymmetrical return. Just stick with me, and I’ll tell you when it’s time to exit this position.

In the meantime, you can track our call – and the rest of our Profit Takeover portfolio – right here.

VIX Traffic Light

The VIX traffic light is yellow again today.

While we are starting to see some signs of the market getting healthier, my big concern is that the VIX remains strong while the S&P has been rallying – which isn’t how things should be.

Remember, in a healthy market, the VIX goes down when the market goes up.

The VIX light will stay yellow until the VIX hits the lows from April around 17. Although, I would say, the other major indicators I follow are showing a red signal, meaning the VIX is more likely to drop.

I believe the full traffic light will turn red shortly. Until then, we just need to let this market movement play out.

Today’s Impact Money Trade

And now, your regular dose of potential “impact money” — institutional money that could fuel a big move on retail-level interest… and AMC Entertainment (NYSE:AMC) is certainly attracting love from the “meme stock” crowd today.

AMC shares have rocketed 19.2% higher to trade just under $20 today, sending call option premiums soaring. As such, it looks like some institutional money is looking to take advantage, potentially selling to open deep out-of-the-money June 40-strike calls.

Click To Enlarge

AMC – courtesy of Trade-Alert

By writing the calls to open, the trader expects AMC to stay below $40 — more than double the stock’s current price — over the next few weeks. If that happens, he or she can pocket some or all of that inflated premium.

This is the perfect example of a two-factor authenticated trade – that said, I’m keeping a close eye on this one.

Until next time,

Mark Sebastian


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