Goodbye YOLO Brick Road

GOODBYE YOLO BRICK ROAD by Tim Melvin & Garrett Baldwin

Forget meme stocks and overcome the fear of missing out (FOMO). Come back to basics. Here are four time-tested investment strategies.

As valuation compression continues for growth stocks in tech and communications, active investors should come back to four “boring” strategies to make real money.

Market fundamentals might not matter much on the way up, but they do on the way down. Investors in growth stocks and you-only-live-once (YOLO) assets, including technology and communications stocks popular during the pandemic, have one last chance to avoid the fallout.

Turning the odds in one’s favor requires time, patience, diligence and strategies that don’t correlate with what the crowd is thinking. Luckbox digs into four strategies that have yielded sizable returns in non-YOLO markets dating back more than a decade.

First, a little on the history of value compression—that means a company’s earnings are increasing but the price of its stock isn’t moving.

Much like during the dot-com crash, some companies have declines in price-to-earnings, price-to-sales and other metrics, even though they maintain strong profits and improved balance sheets. As a result, investors aren’t willing to pay a higher premium for equities.

CHARTING VALUE COMPRESSION

The chart on the opposite page tracks the history of the Shiller PE ratio, which measures the average price-to-earnings ratio for S&P 500 stocks. As of May 1, the Shiller PE ratio stood at 32.5, well above the historical average of 17.35 (1900-present).

A further decline feels inevitable as the Fed begins to tighten its balance sheet by selling its war chest of bonds and mortgage-backed securities.

The Fed’s liquidity drain will likely create more volatility, selling and valuation compression. As a result, active investors may want to consider timetested investment strategies in what continues to be an unpredictable market.

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COMMUNITY BANK MERGERS AND ACQUISITIONS (M&A) In the mid-1980s, the United States had roughly 15,000 banks, but that’s down to fewer than 5,000. The downturn is tied to the consolidation of community and regional banking.

The annual consolidation rate has consistently run 3% to 5%, according to Hovde Capital, and there’s no reason to believe the dealmaking will slow down.

Community banking—defined as financial institutions with a market capitalization of less than $2 billion—is marked by several trends that make companies with lower valuations attractive takeover targets.

A larger bank can use either of two methods to increase its depositor accounts and use that money for traditional lending.

First, it could benefit from a dramatic uptick in the local population and local wealth. Community banks in the Sun Belt are receiving an influx of capital as populations increase because of the COVID-19 migration. Cities like Naples, Florida, for example, have experienced dramatic growth in recent years.

The second option for growth is to buy another bank. Cities like Boston saw a spree in community bank deals recently despite its 1% decline in population between 2020 and 2021. Meanwhile, the need for costly new technology and expensive cybersecurity measures makes it difficult for smaller banks to compete against larger rivals. JPMorgan spent $600 million on cybersecurity in 2018—more than

THESE FOUR STRATEGIES

HAVE YIELDED SIZABLE RETURNS IN NON-YOLO MARKETS DATING BACK MORE THAN A DECADE.

the market capitalization of 198 U.S. banks trading on domestic exchanges, according to GuruFocus.

Smaller banks have also struggled to attract talent. They often have older boards of directors as younger financial talent joins next-generation projects like decentralized finance or moves to New York and other financial hubs to join large investment banks.

Banks remain attractive takeover targets when the Fed raises interest rates to levels not seen in more than a decade. The last time the federal funds rate stood at 3% was early 2008.

That’s why it may be lucrative to buy banks that are trading under a price to tangible book value of 1 or less (TB/V of under 1). That means the bank effectively trades for less than its liquidation value.

Think of it this way: A bank might be worth $1 billion. But the market—for some reason— trades it at a valuation of $800 million. That would be a price to tangible book value of 0.8. As of May 1, 45 U.S. banks traded on domestic exchanges at a price under a tangible book value of 1.

Using a strategy of buying and holding these banks since 2000 has delivered annualized returns of 25.8%, compared with the S&P 500’s 7.5%, albeit with higher volatility.

Patient investors who want to ride the M&A wave on cheap community banks can consider the fact that Blue Foundry Bancorp (BLFY) trades for 77% of its tangible book value and Territorial Bancorp (TBNK) trades for 83% of its TBV. Third Coast Bancorp (TCBX) trades at a slightly higher level of 1.09 times TBV but has had lots of insider buying in recent months.

SHILLER PE RATIO

Even with the recent fall in the Shiller price-to-earnings ratio, the S&P 500 remains above historical averages.

Source: Robert Shiller

32.5

TICKING TIME BOMBS

In April, Luckbox examined the ARK Innovation exchange-traded fund strategy of purchasing “disruptive” growth stocks that traded at extremely high multiples and showed minimal track records of executive insider buying. ARK Innovation is managed by “innovation enthusiast” Cathie Wood.

Wood doesn’t pay much attention to valuations, insider buying or hedging strategies. That’s perilous at a time when valuations are still high.

Historically, a stock trading at 10 times revenue (price-to-sales) can be dangerous.

To justify such an investment multiple, investors must expect a company to pay 100% of its revenues for 10 straight years -as a dividend, with no accounting for ex penses, taxes, research and development— just 100% of the revenue.

This prospect was insane in 2000. But, with the Federal Reserve jackknifing the economy, raising rates and cutting its balance sheet to contain inflation, any company trading at these levels could face a reckoning.

It’s safe to assume that hedge funds and other institutions recognized this danger in January.

All year, institutions have used any short-term uptick in the market as justification to sell equities ferociously, particularly stocks on the Nasdaq-100, anything with a high PS multiple and companies trading like the ones owned by Cathie Wood.

The three worst-performing S&P 500 sectors of 2022 are consumer discretionary, technology and communications—all down more than 18% on the year.

However, iconic companies in those three sectors are still trading at high multiples.

As of May 1, more than 60 companies from those sectors are trading at a nosebleed level of 20 times sales, according to GuruFocus.

At that price ratio, a company would require a 20-year dividend of all revenue to justify the share price. Among the largest by market capitalization, companies with a PS ratio over 20 include Snowflake (SNOW), Crowdstrike (CRWD), DataDog (DDOG), Lucid Group (LCID), The Trade Desk (TTD), ZScaler (ZS), Bill.com (BILL), GitLab (GLAB), Confluent (CFLT), Plug

-

Power (PLUG), MongoDB (MDB) and Rivi an Automotive (RIVN).

Institutions have been selling those stocks at a breakneck pace into every rally this year.

That list of 12 stocks represents an average decline of 37.1% in four months ending May 1.

But it gets worse. Six companies with a market capitalization of over $15 billion are trading at a PS ratio over 35. That list includes Snowflake, Datadog, Lucid Group, Cloudfare, Rivian Automotive and Bill.com.

Buyer beware.

Cathie Wood

S&P 500 SECTOR PERFORMANCE

Energy stands out as the one sector with a strong positive return for 2022. Technology, consumer discretionary and communications services are dragging down the overall S&P 500.

Source: tastytrade

2

RATIONAL LIQUIDATION VALUE The 1991 film Other People’s Money stars Danny DeVito as “Larry the Liquidator,” an activist fund manager who targets a smalltown business called New England Wire & Cable Co. and values the assets in a worstcase scenario of $100 million or $25 per share. When he began his campaign push for the company’s sale, shares traded at $10. He projects a potential 150% upside.

Larry’s valuation of a company’s real estate, fixtures, equipment and inventory is a rational liquidation value strategy. An investor looks at the sum of the parts and buys the stock because the combined assets are worth more than what is reflected in the stock price. It’s best to use tangible book value as the anchor, like community banking. Anything trading at a tangible book value of less than 1 is trading more than the sum of its combined assets.

Most investors might be impatient when it comes to this strategy.

However, a simple backtest to 2000 shows the universe of these stocks has provided investors an annualized return of 32.6%.

That figure is important because the S&P 500 averaged 7.5% during the same period. Over the

5.3% VS. 14.5%

Financial professionals’ long-term return expectations for clients (above inflation) versus individual investors’ expectations. A 174% expectations gap.

—Natixis Investment Managers survey of 8,550 global investors in 2021

last two decades, the strategy has endured three major market downturns and presents itself as a strong alternative for 2022 and beyond.

Attractive companies trading under liquidation value today include auto power and security giant Strattec Security (STRT) at 74% of its liquidation value; steel products manufacturer Friedman Industries (FRD) at 70%; and the 11th largest U.S. home manufacturer, Beazer Homes USA (BZH), at 64%.

3

THE INSIDER VALUE PORTFOLIO In January 2022, the insider buying to selling ratio—on a dollar-for-dollar basis— reached its highest level since April 2020, according to secform4.com. However, insiders have largely remained on the sidelines when purchasing its stock since that late-January window. With so many executives selling stocks in 2021, investors should have confidence in companies where insiders maintain large amounts of company shares. With solid insider holdings, investors can look at lower, attractive valuations

THE SMALL-CAP

VALUE STRATEGY HAS BEEN MORE VOLATILE THAN THE S&P 500 BUT GENERATED ANNUALIZED RETURNS OF 36.9%.

to identify opportunities. Returns have been strong for companies with solid insider buying mixed with low buyout multiples. For example, high insider buying combined with an EV/EBIT (enterprise value/earnings before interest and tax) of 10 have delivered annualized returns of 19.3% since 2000, according to Insider123, a backtesting and research software tool. The strategy also saw a slightly lower maximum drawdown compared with the S&P 500—51.6% compared with 55.4%.

Today, investors can consider Dick’s Sporting Goods (DKS) with a 40% insider holding and EV/EBIT of 4.6. In addition, consider Taitron (TAIT) at an EV/EBIT of 6.7 with 74% insider ownership.

4

SMALL CAP VALUE It’s a well-known market anomaly that smallcap stocks outperform the broader market. This is linked to the fact that smaller companies have longer growth runways than their larger rivals.

But in an adverse momentum market that has seen outflows of speculative capital, smallcap investors and traders should turn their attention to companies with solid balance

27%

of Luckbox readers have long-term average annual return expectations of +14%

sheets and low valuations. To determine a strong balance sheet, pay close attention to the Piotroski F- and Altman Z-scores.

The F-score, created by Joseph Piotroski, who taught at Stanford University and the University of Chicago, is a nine-point system that rewards each company for meeting a certain criterion on its balance sheet. Metrics include higher return on assets year-over-year, decreasing outstanding shares year-over-year and lower leverage year-over-year.

Companies with F-scores in the 7 to 9 range are showing improving balance sheets annually.

The Altman Z-score is a weighted average of five metrics to determine a company’s bankruptcy probability. Typically, investors can play it safe with companies with an Altman Z-score over 2.6. Finally, to assess valuation strength, look at companies trading at an EV/ EBIT under 8.

Since 2000, the small-cap value strategy has been more volatile than the S&P 500 but generated annualized returns of 36.9%.

Consider Rex American Resources (REX), Zedge (ZDGE) and A-Mark Precious Metals (AMRK).

PRAYING FOR A REBOUND

It’s not too late to get out of the way of the valuation compression that appears to be an inevitable trend in 2022 and 2023. Instead of trying to catch the falling knives of the technology and communications sectors, active investors should turn their attention to the deep values a market sell-off can create. Many strong companies ripe for investing have solid balance sheets and great business models.

Active investors should turn the odds in their favor and stop thinking that this time is different.

Tim Melvin, a 30-year veteran of financial markets, uses rigorous quantitative analysis based on the principles of deep value and private equity styles of investing.

Garrett Baldwin is a momentum trader, economist, editor-at-large of Luckbox, co-host of The Prediction Trade podcast and the executive producer of Money Morning LIVE.

trends

life, luxury & the pursuit of happiness

GAME THEORY

Memorable Sports The exhilaration of snatching victory from the jaws of defeat By Andrew Prochnow Comebacks

TORONTO MAPLE LEAFS

1942

The Toronto Maple Leafs pulled off an epic comeback that’s never been duplicated in the 100-year history of the National Hockey League.

In 1942, the Maple Leafs fought their way through the playoffs to the final round. Only the Detroit Red Wings stood between them and the Stanley Cup.

The Leafs came out flat during the first few games and found themselves down 0-3 in the series. The Red Wings needed only one more victory to raise the Cup, while the Leafs would have to string together four consecutive wins to snatch the title.

Down 0-2 in Game 4, the Leafs pulled off a miracle, winning 4-3 in overtime. The Game 4 victory changed the tone of the series. The Maple Leafs went on to dominate games 5, 6 and 7 by scores of 9-3, 3-0 and 3-1 en route to hoisting the Stanley Cup.

During that unbelievable run, the Maple Leafs became the only team in history to come back from an 0-3 series deficit in the final round of the NHL playoffs.

RAFAEL NADAL

2022

Rafael Nadal missed part of the 2021 tennis season because of foot surgery. As a result, expectations were low for the Spanish player at the outset of the 2022 Australian Open—the first of the year’s four major tennis tournaments.

But expectations changed quickly, as Nadal beat the highly regarded Denis Shapovlov (seeded 14th) in a tightly contested five-set thriller during the quarterfinals. He followed that with a routine win in the semifinals over the seventh-seeded Matteo Berrettini.

During the championship match, Nadal locked horns with Daniil Medvedev—the same player who stopped Novak Djokovic from completing the calendar Grand Slam in 2021. Medvedev beat Djokovic in straight sets during the 2021 U.S. Open final and is considered one of the best hardcourt players in the world. (Note: The Australian Open is played on hardcourt.)

In the final, Medvedev took early control and cruised to a two-set lead. Medvedev also built a 3-2 lead in the third set and was up 40-love in the sixth game.

With his back to the wall, Nadal fought off all three breakpoints and proceeded to win the match by a score of 2-6, 6-7, 6-4, 6-4, 7-5. With the title in hand, Rafa broke a three-way tie with Djokovic and Roger Federer, and became the first man in tennis history to win a total of 21 majors.

The win made Nadal only the third man in the Open Era to win titles at all four majors at least twice—referred to as the “double career Slam.” The two other players to notch the achievement are Djokovic and Rod Laver.

NEW ENGLAND PATRIOTS

2017

Before 2017, football fans frequently cited the 1993 playoff game between the Buffalo Bills and the Houston Oilers as the greatest comeback in the history of the NFL. In that legendary wild card playoff game, the Bills climbed back from a 32-point deficit to beat the Oilers 41-38.

Although that win will always rank among the NFL’s greatest comebacks, the 2017 Super Bowl between the Atlanta Falcons and the New England Patriots arguably displaced it as the greatest comeback in NFL history. In that championship game, the Patriots overcame a 28-3 deficit to pull off a 34-28 victory in overtime.

In terms of margin, it represents the greatest comeback in the history of the Super Bowl. It was also the first Super Bowl decided in overtime, and more than 30 Super Bowl records were matched or broken.

The victory was also quarterback Tom Brady’s fifth Super Bowl title, tying the record set by Charles Haley. Since then, Brady has won two more Super Bowl titles.

New England Patriots quarterback Tom Brady

PHILADELPHIA ATHLETICS

1929

Baseball, America’s 200-year-old pastime, has a long history of comebacks.

In regular season play, three teams have come back to win after being down 12 runs: the Cleveland Indians in 2001, the Philadelphia Athletics in 1925 and the Detroit Tigers in 1911.

One of the greatest comebacks in the post-season occurred during the 1929 World Series when the Chicago Cubs took an 8-0 lead over the Philadelphia Athletics. Philly managed to score 10 runs in the bottom of the seventh inning, winning the game and ultimately clinching the series.

Pitching great Lefty Grove (right) played for Connie Mack on the 1929 Philadelphia Athletics.

PAUL LAWRIE

1999

The emerald green links of Scotland, the birthplace of golf, provided the backdrop for one of the greatest comebacks in the history of the sport.

Like tennis, the men’s professional golf circuit includes four majors every year: the Masters, the PGA Championship, the U.S. Open and the British Open.

In 1999, the British Open was played at the Carnoustie Golf Links in Angus, Scotland. During the final round, Paul Lawrie (pictured left) climbed out of a 10-stroke hole to realize the biggest-ever comeback during the final round of a major.

Unfortunately, the 1999 British Open was also the scene of one of the most horrific collapses in golf history. Heading into the 18th hole, Jean van de Velde of France held a three-stroke lead and only needed to double-bogey 18 to claim the title.

As it turned out, van de Velde was lucky to triple-bogey the hole, forcing him into a three-way playoff with Lawrie and Justin Leonard—a playoff Lawrie ultimately won.

Lawrie’s victory at the British Open, the first for a Scotsman in 68 years, will forever be heralded as one of the greatest comebacks in golf history. Also worthy of noting is Jackie Burke Jr.’s win at the 1956 Masters Tournament.

Andrew Prochnow, a longtime sports writer and options trader, has contributed extensively to Luckbox, Bleacher Report and Yahoo! Sports.

RECORD HIGH

Sound Revivals

Legendary musicians are stepping back into the limelight, older rock songs are scoring big streaming numbers and sales of tangible music formats are booming: The music industry is never short of comebacks

By Kendall Polidori

REWIND

Digital downloads and music streaming took flight in the early 2010s, leaving CDs, cassettes and vinyl collections to gather dust in grandma’s basement. But now vinyl’s back in the mainstream with sales that have gradually increased for the past 15 years.

Tangible music sales in a variety of formats brought in $1.65 billion in the U.S. last year alone, according to the Recording Industry Association of America. In 2021, vinyl sales reached $1 billion, up from $643.9 million the year before and outsold CDs for the first time in three decades.

Cassette tapes are also making their way back into music distribution, with global sales flourishing. WIRED reported in 2019 that the U.K. recorded its strongest cassette sales in a decade—totaling 75,000—thanks in part to artists like Billie Eilish and Björk. It’s a dramatic leap from 50,000 sales the year before. By the end of 2020, around 150,000 cassettes were sold in the U.K., an increase of 103%, according to NME, a British pop culture website.

It’s not clear what’s driving the rise in cassette sales, but as the desire for physical music formats increases, cassettes become a cheaper entry point for listeners. They often go for $10, compared with the $20 to $30 it costs to buy a new vinyl record. They’re also easier and quicker to produce, without the extended backorders typical now for vinyl.

Not many companies have continued making and distributing cassette tapes over the past few decades, but more are starting to pick up on the trend. The Missouri-based National Audio Company, the world’s largest manufacturer of the format, saved a 62-foot tape-coating line once used to make magnetic strips for bank cards and began producing the tape themselves.

Cassettes are not yet the biggest-selling physical music format, but they’re gaining traction. Could CDs make the same type of comeback in the next decade? Either way, analog and digital will be living harmoniously for the foreseeable future.

OLD ROCK OUTRANKS

MRC Data and Billboard magazine release a combined year-end report on the music industry. They include streaming numbers, and digital and physical sales. The numbers from 2021 reveal “old music” continues to rank high among modern rock names on streaming services.

TOP ROCK ALBUMS

n Queen, Greatest Hits n Fleetwood Mac, Rumours n Machine Gun Kelly, Ticket to My Downfall n Elton John, Diamonds n Creedence Clearwater Revival, Chronicle: The 20 Greatest Hits

TOP ROCK SONGS

n Glass Animals, Heat Waves (4 million digital song sales) n Machine Gun Kelly x Blackbear, My Ex’s Best Friend (2.2 million) n Måneskin, Beggin’ (2.1 million) n Fleetwood Mac, Dreams (2.1 million) n The Neighbourhood, Sweater Weather (1.8 million)

TOP AUDIO STREAMS

n No. 7: Creedence Clearwater Revival, Have You Ever Seen The Rain (94.4 million) n No. 9: Lynyrd Skynyrd, Sweet Home Alabama (92.3 million) n No. 10: Fleetwood Mac, Dreams (91.1 million)

Source: MRC Data and Billboard 2021 Year-End Report PHOTOGRAPH: SHUTTERSTOCK

PHOTOGRAPHY: (PEPPERS) PA ARCHIVE/PA IMAGES; (ABBA) MPTVIMAGES.COM; (BOWIE) REUTERS/DYLAN MARTINEZ/FILE PHOTO RECENT COMEBACKS

n ABBA, Voyage In November 2021, the beloved Swedish pop group ABBA made a comeback with their album Voyage, the first release from the group since 1981’s The Visitors. Apparently, they didn’t lose their audience during the 40-year pause. A month after its release, the album had already landed the No. 1 spot on album charts in 18 countries. It also broke records by selling more than 1 million copies during its first week. According to NME, the album accumulated more than 275 million streams combined across multiple platforms in December. It’s a catchy, melodic 10-song album meant to dance to.

n ADELE, 30 Adele is the queen of releasing an album and then disappearing until she’s ready to drop the next one. After the success of her album 25, fans hadn’t heard much from the global pop icon until the announcement of 30, which was released last November. Her single Easy On Me quickly broke Spotify’s record for the most-streamed song in a day and week by surpassing 1.5 million streams across all platforms. The song also spent weeks at No. 1 on the Billboard Hot 100 chart. In January, Billboard reported that sales for 30 reached 1.46 million, making it the biggestselling album in the U.S. of any year since 2018.

Agnetha Fältskog and Anni-Frid Lyngstad (Frida) of ABBA, and Anthony Kiedis and John Frusciante of Red Hot Chili Peppers.

n PIXIES, Human Crime The Pixies haven’t disappeared from the music scene in recent years, but they haven’t won praise for the albums they’ve released since their 2004 reunion. Their most recent album, Beneath the Eyrie, from 2019, garnered lukewarm reviews from the likes of Pitchfork and Rolling Stone. But their most recent single—their first in two years—is called Human Crime and just might reinstate the band in the top tier of new rock music. Reliable guitar riffs and smooth vocals from frontman Black Francis back the song’s anthemic vibe.

n RED HOT CHILI PEPPERS, Unlimited Love The Red Hot Chili Peppers caught the rock world’s attention this year with the announcement of Unlimited Love—the band’s first album since guitarist John Frusciante’s return in 2019. Before this comeback, Frusciante was with the band in 1988-1992 and again in 1998-2009. He has played on Red Hot Chili Peppers’ most-acclaimed albums, and Unlimited Love is their first to hit No. 1 since their 2006 album Stadium Arcadium, which was the last one with Frusciante. After its debut in April, it landed on the U.S. Billboard 200 Albums chart by selling 97,500 albums. As of May, Unlimited Love also had the best-selling week of any rock album in the last 16 months. The album isn’t necessarily the band’s best, but it’s a solid, enjoyable piece of work and brings back the Californication vibe.

David Bowie released 26 studio albums.

TOP MUSIC COMEBACK

n DAVID BOWIE, Lazarus David Bowie’s single Lazarus, released on Dec. 17, 2015, and featured on his album Blackstar, was his first Top 40 hit on the Billboard Hot 100 in 28 years. The single and video earned great reviews, but Bowie never performed it live because he passed away from liver cancer just weeks later. The song, and others on Blackstar, his 26th and final studio album, are said to be commentaries on Bowie’s own death. Lazarus is often interpreted as Bowie’s prediction that his fame would increase after his death. The track has since been used in Bowie’s offBroadway musical of the same name. Lazarus did not define Bowie’s career but was an impressive comeback for the artist and a powerful tribute to his life.

ROCKHOUND

Brothers David, Bobby and Dannis Hackney formed the Black funk band Death in Detroit in the 1970s, but it turned into a punk rock project after they saw The Who live.

Radkey: No Rules Punk

By Kendall Polidori

A synergy born of shared experience binds the three Radke brothers. They make music with a driving punk force and delicately laid-out instrumental groundwork. Often, Death or

Bad Brains come to mind, but the Radke brothers and their band, Radkey, live entirely within their own sphere.

It’s true the St. Joseph, Missouri, natives share a certain aura with the bands above, but according to bassist Isaiah Radke, their band Bad Brains, formed as a jazz fusion band in 1976 in is more of a Weezer, Foo Fighters Washington, D.C., has been regarded as a driving force in hardcore punk. and Ramones mash-up, only there are no rules. Experimenting with punk, rock, pop and stripped-down acoustics,

Isaiah, Dee and Solomon Radke bounce off one another rhythmically to form a sound all their own.

THE EARLY DAYS

It’s puzzling for Isaiah to look back at what the band faced in St. Joseph after touring with such stars as Jack White, Foo Fighters and The Offspring. He notes the bizarre reality of being a Black rock band—often questioned for not being into rap instead.

“We just grew up listening to music, and it happened to be rock music. Black people have always been playing rock music,” Isaiah says. “We’d have people come up to us and say, ‘I saw you guys get on stage and I really didn’t know what was coming.’ But we loaded up guitar, drums and bass, so what else did they think was going to happen? It’s so confusing and bizarre that it’s considered weird to be a Black rock band.”

Growing up homeschooled, the Radke brothers found themselves without much to do—aside from digging through their father’s massive vinyl and CD collections. Artists like Led Zeppelin, the Ramones, The Beatles, Steely Dan, Billy Joel, Elvis Costello,

The Beatles, Stones and Zeppelin were awesome—but rock lives on. Why not break out of the classic rock cocoon and give new rock a chance? Rockhound is here to help. Think of it as a bridge from 1967 to today and beyond.

Weezer and Nirvana were among their daily rotations. When they picked up instruments of their own, those influences immediately seeped through.

They spew pure, elevated energy and an old school rock mentality—jumping around on stage for an hour straight in sleeveless jean jackets and black wrist sweatbands. What bass player other than Isaiah Radke comes to mind who bobs his head aggressively and does jump splits live? Next to none, even in the most hardcore rock bands.

“We always tried to make music that we felt didn’t exist yet,” Isaiah says. “We’re happy we had those influences because then we always enjoyed the music that we made.”

As young teens discovering their place in music, the Radke brothers found that writing and recording came to them naturally. With their dad as their manager, touring the country in a van was a family road trip they enjoyed. Grounded in the same influences, collaboration and songwriting has been an oddly smooth process for Radkey. They somehow eliminate the frontman mentality, too—they are all the frontman, contributing equal amounts of heart to their sets. But in the beginning, getting other people to see that, let alone listen to their music, wasn’t easy.

When they dipped their feet into the live show pool in the 2010s, they had trouble booking shows in their hometown, forcing them to venture out to nearby Kansas City venues.

“It was really discouraging,” Isaiah says. “That’s how people can really kill a band—by not letting them even play shows in the town they’re from. We continued to grind and practice and, eventually, we landed our first gig with Fishbone in Kansas. That’s when we were like, ‘OK, we can do this.’”

MAKING THEIR OWN RULES

Radkey hasn’t let the challenges of stereotyping and hometown rejections slow them down. Independent from a record label, they’ve forged a path of their own. The key, Isaiah says, is playing as many shows as possible. With that came connections, landing them big

gigs and allowing them to retain full creative control. They have to work twice as hard to promote themselves and book shows, but they have no one to answer to or pay, aside from their dad.

“It’s important for us to prove to ourselves that we can make this work,” Isaiah says.

Although known as a post-punk group, offstage the brothers are soft-spoken “nerds” who put family and their cats first. As for their music, they don’t hesitate to stray from a heavier, and sometimes lighter, sound. Incorporating rock riffs and pop melodies, the band lives up to what it means to be punk: authenticity. The brothers don’t pretend to be musicians they are not. They’d rather have fun.

ROCK JOY

Playing their music unencumbered, Radkey strives to build a bridge between hard rock and dance music, which is often frowned upon in rock culture. At a live Radkey show, Their band is one song leads fans to form an energetic mosh pit and the next initiates a more of a Weezer, chill dance party. Foo Fighters and They’re shy, but it’s never been hard for them to turn on a spirited stage Ramones mash-up, presence built from the influences of Cheap Trick. Isaiah notes this as “one only there are of the reasons our music got bigger no rules. and better. We didn’t want to just be this stage show band, we really wanted people to dig our music.”

Their sound is bigger than expected from a three-man band. The songs are musically full and layered, filling the space between them and their audience. A punk attitude is often directed toward school or broken family structures, but for Radkey, their attitude toward life in general is positive.

As movie and video game hounds, they often get ideas from storylines that speak to them. After years of touring, they now

(Left to right) Solomon, Dee and Isaiah Radke have been playing music together for more than 10 years.

build off experiences of their own.

Their latest single, Games (Tonight), is an example of Radkey’s knack for forcing people to reflect on common human experiences. They wend their way through emotional complications. They encourage listeners to understand themselves and learn to articulate their feelings. They drive anthems forward with Dee’s baritone vocals kicked up to a higher octave. They take a pop-punk approach similar to Green Day and Blink-182.

With more singles, shows and festivals ahead, Isaiah says they are likely to release their fifth studio album later this year and hope to encourage people to attend more rock shows.

“We want to deliver a good enough show to maybe change people’s minds about going to concerts and convert average people into concert-goers. Then, maybe rock shows will get a little bit more filled,” Isaiah says. “I would love for people to enjoy big rock bands in a broad kind of way.”

More Radkey

Seize

START WITH

Radkey’s song Seize and you might hear a drum anthem and tempo similar to that of Foo Fighters’ Pretender.

PAY ATTENTION TO

Dee’s baritone vocals and bluesy undertone. He quickly switches octaves to keep up with the fast-paced guitar and bass rhythms—which present a powerful solo midway through.

Kendall Polidori is Luckbox’s resident rock critic. Follow her reviews on Instagram @rockhound_luckbox and Twitter @rockhoundlb.

SENTIMENT

ARE BIG CITIES PAST THEIR PRIME?

INTELLIGENCE SQUARED U.S.

invites some of the world’s brightest thinkers to debate issues. The organization was founded in New York in 2006 to promote intellectual diversity by fostering respect for differing opinions.

The debates are organized in the traditional Oxford style. The side that convinces more audience members to embrace its arguments wins.

The excerpts below come from a debate in March about big cities and their appeal—or lack thereof— in a post-pandemic world.

YES

39%

YES

47%

NO

–AUDIENCE OPINION BEFORE THE DEBATE

14%

UNDECIDED

TOKYO, THE WORLD’S MOST POPULOUS CITY, HAS 37.7 MILLION PEOPLE

More Debate

See who won the debate

MANILA, PHILIPPINES, THE MOST DENSELY POPULATED CITY IN THE WORLD, HAS 111,000 PEOPLE PER SQUARE MILE

27,000 PEOPLE PER SQUARE MILE

IN THE U.S., IT’S NEW YORK CITY WITH MORE THAN

NO

KOTKIN: I think cities have been past their prime in many ways, compared with where they were 40 to 50 years ago. But I want to define what i’m talking about when I say “city.” I’m talking about the core city. What we’re seeing is that regions are becoming more important than cities, and these regions are predominantly suburban. This has been accelerated by online work—it allows people more options. Let’s say you live in Riverside, California, and your job is in Irvine, California. It’s kind of a death march to do that commute every morning. So, what we’re really talking about here is not that cities are going to die, but that their function will be different.

HERNANDEZ: The world has changed. Technology has changed. I’m sure there were people defending horses and buggies, and I certainly know that people were defending telegraphs. We just completed a big study in the SCAG region—all of Southern California except San Diego—finding out who’s telecommuting and who wants to telecommute. Even for essential workers who have to be on the job, they have the opportunity to buy into shorter work weeks—four days instead of five—travel less, and do some of their functions from home. So, I’ll stop by saying there’s convergence on a megacity. There’s absolute disagreement on core cities.

Joel Kotkin, scholar of global, economic, political and social trends and the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. Jennifer Hernandez, attorney and environmental advocate who studies how city policies affect minority communities, especially in the wake of climate change. O’MARA: I am here to forcefully argue against the notion that big cities are past their prime. They are not only in their prime, but perhaps their best days are yet to come, and here is why: If we take the long view of large cities throughout millennia—throughout human history— the density of human settlement has been critical not only for protection from harm but also in creating commerce and building wealth, communities of sociability and, critically, communities of innovation and creativity where new ideas come together and advance social progress and human understanding. There have been many premature obituaries written for cities.

GLAESER: If we take a global perspective, the case that cities are past their prime is laughably false, right? In 2018, the U.N. projected that we would go from having 33 megacities to having 43 megacities over the next 12 years. Today, more than one in eight people live in these megacities. Cities are powering the growth of the developing world. They are providing enormous income benefits, and there are even places where self-reported happiness is demonstrably higher. If we want to restrict ourselves just to the U.S., I think the case is closer, but I still think it is very much false that cities are past their prime.

Margaret O’Mara, historian of modern America who teaches and writes about the history of the technology industry, American politics and the connections between the two. Ed Glaeser, American economist and professor at Harvard University, where he teaches microeconomic theory and urban and public economics.

WHEELS

The Bug’s Bus is Buzzing Back

The look of an automobile icon—VW’s T1 Microbus— returns in the era of electric mobility

For more than 70 years, the Volkswagen Bus has been an automotive icon. A trendsetting choice for American hippies and road-trippers, VW helped define van life. Rumors the popular bus would make a comeback floated 20 years ago, and now VW has confirmed a retro reboot—but with a twist.

The all-new electric VW Microbus is scheduled to launch this fall in Europe, and a North American debut featuring a long-wheelbase model is planned for 2023 with sales to begin in 2024.

Two zero-emission vehicles transfer the design of one of the greatest automobile icons—the T1 Microbus—to the era of electric mobility. Recycled materials and no use of real leather in the interior complete the sustainability strategy of the ID. Buzz and ID. Buzz Cargo.

The European versions will come to market with a 77 kWh battery, which provides current to a 150 kW electric motor. Although VW doesn’t offer details on range, a MotorTrend March 2022 article projects 270 miles as the range for the electric bus. That’s comparable to the battery range of a Tesla Model 3 RWD.

VW said the peak charge rate of 170 kW can generate a quick charge from 5% to 80% in 30 minutes. It also features an onboard AC charger good for 11 kW, ensuring the ID. Buzz will keep Level 2 charges as brief as possible, too.

“The ID. Buzz brings a lot of

Featuring a vintage oversized VW logo, two-tone paint and a diamond-patterned grille, the electric ID. Buzz takes its design cues from the classic VW bus of yesteryear. Car and Driver magazine estimates the retail price at $40,000, a figure VW has not confirmed.

endearing charm and affinity with people back onto the road,” said Jozef Kabaň, head of Volkswagen Design, tying a direct link to the original classic VW Bus. “In the T1, you are practically sitting on top of the front axle—there’s no front overhang. While providing everything of relevance to safety and technology, the ID. Buzz has wonderfully short overhangs.” Unlike the original boxy VW bus built on a Beetle-based platform, the new ID. Buzz features a space-age square body sitting on a platform motored by a battery pack. The compact overall length of 4,712 mm is accompanied by what in comparison is a very long wheelbase of 2,988 mm, VW reports. Design already followed function in the case of the T1, the first Bulli. Beyond exterior aerodynamics, the roomy interior offers what VW describes as “lounge-like” comfort for five passengers and their luggage.

MotorTrend suggests the vintage styling—such as the oversized VW logo, two-tone paint, and diamond-patterned grille—are reminiscent of the buzz from the classic VW bus.

The all-new electric VW Microbus is scheduled to launch this fall in Europe, and a North American debut is planned for 2023.

FINANCIAL FITNESS

Come Back to Fitness

Here’s how to manage workouts, nutrition and a third approach to fitness that may surprise you

By Jim Schultz

Time to be brutally honest with yourself.

It’s been a while since you’ve sweated through a training session or filled out a food journal. In fact, you’re not even 100% sure your old gym is still in business.

But you can reclaim your fitter former self with the help of three strategies. One’s for the gym, another’s for food and you may find the third a surprise.

Here’s how to get back on the train to Shredsville in no time.

1. LIFT SMART

Start small and keep it easy. In fact, shoot for smaller than small and easier than easy. Whatever you think you’re capable of doing right now, which won’t be much, do 50% of it. Simply stepping back onto the rubber mats is a big enough victory for the time being. Besides, setting an easier goal makes it more likely you’ll accomplish it. Small victories lead to greater confidence, which leads to more small victories, and so on.

While muscles get all the press and hog the spotlight, forget them for a minute. Tendons, which are everywhere in the body, don’t get much attention. But overload them too quickly, and you’ll be hurting in places you hadn’t thought about in years. Take it easy—give those tendons a chance to strengthen and solidify, and they’ll thank you with months of injury-free bombing and blasting.

If you need a specific plan, do a full-body routine on Mondays, Wednesdays and Fridays.

2. EAT RIGHT

Develop a nutritional strategy. Simply “eating clean” isn’t a strategy, and committing to “making better choices” almost guarantees failure. Instead, create a structure with two parts: measurement and accountability.

For measurement, choose one of the dozen or so methods available and try it for two weeks. Then adjust it or abandon it and pick another approach. Track everything stuffed into your mouth in calories or micros. Measure protein or sugar. Choose time-restricted eating (intermittent fasting) or fun-restricted eating (keto). All of those methods can work.

But don’t trust your intuition when it comes to nutrition. Chances are your eating habits are a bit, uh, suboptimal. For people who have struggled with their weight, intuitive eating may never be a long-term option. Even fitness enthusiasts who depend on intuitive eating didn’t roll off the couch and into that lifestyle—

The author takes a stroll

Brisk walking increases life expectancy by as much as 16-20 years, according to a 2019 U.K. Biobank study with 475,000 participants.

it takes years of discipline.

Not sure where to start? Begin by tracking protein and build up to 0.36g/lb of body weight per day. For example, a 150-pound person should consume 54 grams of protein per day.

3. WALK FAST

Start walking your way to a healthier lifestyle. Do it every day and don’t make exceptions. Download a free app to track steps, lace up those sneakers and start getting your steps in. It’s simple but also sneakily effective. Not only will you start reclaiming your fitness, but if you’re able to walk outside, where the beauty of nature collides with your natural endorphins, you’re going to feel great.

Need some goals? Aim for 7,000 steps a day the first week, then 8,000, then 9,000, then 10,000.

Jim Schultz, Ph.D., a derivatives trader, fitness expert, owner of livefcubed. com and the daily host of From Theory to Practice on the tastytrade network, was named North American Natural Bodybuilding Federation’s 2017 Novice Bodybuilding Champion. @jschultzf3

CALENDAR

JUNE

3 World Bicycle Day

5 World Environment Day 3-5 Street Vibrations

Spring Motorcycle Rally

Reno, NV

6-10 Apple’s Worldwide Developers Conference

Online

7 National VCR Day 9-12 Chicago Blues Festival 10-12 Governors Ball Music Festival

New York City

14 National Bourbon Day 16 Entertainment, Pop Culture,

Toys & Collectibles Auction

Potter & Potter Auctions

19 Father’s Day 21 World Day of Music 21 Summer Solstice

23 National Typewriter Day 23-26 Pintastic Pinball & Game Room Expo

Sturbridge, MA

25 Global Beatles Day 27 Wimbledon Begins

London

Pedal Power

Cyclists are hitting the bike paths and lanes more than ever, and that’s driving a boom in spending. In fact, Americans paid $8.2 billion for bikes and accessories in the first quarter of last year, up 35% from a year earlier, according to the U.S. Bureau of Economic Analysis. High gas prices and fear of the pandemic have triggered those increases, but commitments to exercise and sustainability have also contributed. That’s according to professor Leszek Sibilski of Montgomery College in Rockville, Maryland. He’s helped support the surge by urging the United Nations to declare a global celebration of bicycles for both exercise and travel—a resolution the U.N. unanimously approved in 2018.

Giggle Water

That’s what flappers called bourbon during Prohibition, but it’s no laughing matter that U.S. bourbon sales reached $76 million in 2021, according to Statista. Sales of bourbon, also known as “America’s Native Spirit,” have increased every year since 2010. To put it in perspective, vodka accounted for about a third of the spirits industry’s volume with $78 million while gin came in just under $10 million last year.

Vintage Keys

A light blue Olivetti Lettera 32 once owned by Cormac McCarthy, author of All The Pretty Horses, sold for $254,000 at Christie’s Auction House. Despite falling from favor in the 20th century, typewriters apparently are again bringing comfort to collectors and famous writers. Connoisseurs of vintage keys include George R.R. Martin, Quentin Tarantino and Jhumpa Lahiri. Although typewriters may not be put to use much these days, they’ve gained renewed popularity, and some companies are still producing them in small quantities.

Get Back

The June 25 day of celebration marks The Beatles’ first global live TV performance on the BBC’s Our World in 1967 of All You Need Is Love, which reached 26 countries simultaneously. For six decades, the band has remained at the top, despite not releasing any new music since Let It Be in 1970. The group attracts about 25 million monthly listeners on Spotify today. By the end of last year, their vinyl album Abbey Road sold approximately 201,000 units. Here are their three most streamed songs on Spotify:

1. Here Comes The Sun / (798 million streams) 2. Come Together / (501 million) 3. Let It Be / (453 million)

cheat sheet NO. 23

Long Call Speculation

PROS CONS

Paying a fee to lock in a price

By Eddie Rajcevic

Leverage ✓

Time Decay ✗

uying a long call option is like saving

Ba coupon for a rainy day.

Let’s say a clothing store sells rain jackets. Shoppers aren’t certain if the upcoming season will be rainy or not, so they don’t want to risk buying a $100 jacket and not using it. If the store offers a $5 coupon that guarantees the $100 purchase price, they can wait for a month to decide if they’ll buy the jacket.

Now, suppose that two weeks pass and it rains nonstop. People are flocking to the store to buy rain jackets, so the manager raises the price to $120. Customers with coupons can still buy the rain jacket for $100 instead of the inflated price of $120.

In the opposite scenario—it doesn’t rain for weeks and no one needs a rain jacket—coupon holders can let them expire and just lose $5 instead of the $100 they would have lost if they had bought the jacket and not used it.

In finance, a long call works in a similar fashion. This options strategy of buying a single call option gives the owner the right to buy 100 shares of a stock at a designated price on or before a future date. The designated price is the option’s strike price and that future date is the expiration date.

To buy a long call, the owner pays a premium to the seller. Traders use long calls because they believe the stock will increase before the expiration date but don’t want to buy the shares initially. If the stock increases in price, the value of the long call has a similar increase. When investors are satisfied with their gain, they can sell the call to lock in the profit.

Instead of paying $10,000 to buy 100 shares of a $100 stock, long calls allow active investors to gain exposure to those shares at a much lower price (e.g., $500).

Each day that a long call is held, it slowly loses value due to the time component of options. If the stock does not see a large enough price increase, the time decay results in a losing trade. Limited Risk Volatility The only cost, and loss potential, for a long call is the premium paid to acquire the contract initially. Impending news, like earnings announcements, increase volatility and the price of options. After the news passes, the volatility and price falls. This can create a loss for long calls. Flexibility Probability Long calls can be combined with other options strategies, or even stock positions, to create new strategies. ✓ ✓ Long calls generally have a lower probability of being profitable. ✗ ✗

Taking a shot

Investors buy calls to speculate on a rising stock price for a fraction of the cost. $300 $250 $200

Profit/Loss $50 $100 $150 $0 $-50

Eddie Rajcevic, a member of the tastytrade research team, serves as co-host of the network’s Crypto Corner and Crypto Concepts programs. @erajcevic11 $-100

96 98 100 102 104 106

Stock Price

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VISIT DAILYFX.COM

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Intermediate to advanced Backtest your stock option trade strategies. You can see how well they would perform historically by providing insight into the average profit/loss, the win rate and the maximum loss that the strategies saw, along with other metrics. In addition, lookback allows you to forecast the potential profit and loss before you enter a trade, so you can better understand how changes in price and time impact potential positions.

VISIT TASTYTRADE.COM/LOOKBACK

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The Blunt Truth About Pot Stocks

Cannabis-related stock prices are falling as the nation awaits federal decriminalization

By Michael Rechenthin

A

fter the 2020 U.S. presidential election, cannabis stocks reached new highs as the nation waited for President Joe Biden to fulfill campaign promises to decriminalize cannabis and pardon nonviolent offenders.

When that didn’t happen, cannabis stocks began falling to new lows. Although the S&P 500 is up 5% since January 2021 when Biden took office, the average cannabis stock is down almost 50%.

Here are a few stocks that are smokin’, and others that are ready to go up in smoke.

Cannabis-oriented ETFs

Cannabis exchange-traded funds have great symbols: Cambria Cannabis (TOKE), AdvisorShares Pure Cannabis (YOLO) and ETF Managers Alternative Harvest (MJ). But catchy symbols haven’t necessarily led to liquidity and widespread use.

The most liquid, judging by the average dollar amount traded per day, is AdvisorShares Pure US Cannabis (MSOS). A close second is ETF Managers Alternative Harvest.

Opposite of high

Although the S&P 500 is up 5% since President Joe Biden took office in January 2021, the average cannabis stock is down almost 50%.

S&P 500

Average Cannabis Stock 80%

60%

40%

20%

0%

-20%

-40%

Jan 2021 Mar 2021 May 2021 Jul 2021 Sep 2021 Nov 2021 Jan 2022 Mar 2022 May 2022

Source: tastytrade

The others are best avoided— Cambria Cannabis trades an average of $191,000 worth of shares a day, and it’s a good rule of thumb not to buy anything that trades less than $10 million per day.

Below are some of the biggest names in the cannabis industry. Stocks priced at less than $5 are not included.

Tilray Brands (TLRY) was the most actively traded stock through the end of April. While revenues have increased, it is bleeding money and net income is dreadful. But its fortunes could change and the stock could turn around.

Active investors considering Tilray for their portfolios could take advantage of the call skew. By projecting out a month, they could buy the stock and sell the first out-of-the-money call and lower the investor’s breakeven by 20%.

Investors interested in taking advantage of a real estate investment trust (REIT) might want to

Suffering symbols

Investors aren’t eating up these cannabis-related exchange-traded funds.

Description Avg. Dollar Traded Per Day

MSOS AdvisorShares Pure US Cannabis ETF MJ ETF Managers Alternative Harvest ETF YOLO AdvisorShares Pure Cannabis ETF POTX Global X Funds Cannabis ETF CNBS Amplify Seymour Cannabis ETF THCX Spinnaker Series Cannabis ETF TOKE Cambria Cannabis ETF

$30 million

$16 million

$2 million

$2 million

$1 million

$700,000

$200,000

When call options are trading at greater values relative to equidistant put options. consider Innovative Industrial Properties (IIPR). It’s had positive net income for years. It’s lumped into the cannabis industry because it owns cannabis-heavy commercial properties. It also pays a respectable 4.8% dividend. Investors could consider a covered call in this stock by buying 100 shares of stock and selling the first (or second) call option above the current stock price.

Michael Rechenthin, Ph.D. (aka “Dr. Data”), is head of research & development at tastytrade. @mrechenthin

Smokin’ stocks

Some of the biggest names in the cannabis industry aren’t traded often.

Description Implied volatility 12-month

100% price change

TLRY Tilray Brands 98% -73%

CGC Canopy Growth 134% -81%

IIPR Innovative Industrial Properties GRWG Grow Generation HYFM Hydrofarm Holdings CARA Cara Therapeutics TPB Turning Point Brands SWM SchweitzerMauduit International 60% -19%

108% -87%

111% -85%

98% -28%

74% -38%

52% -45%

Avg. Dollar Traded Per Day

$281 million

$71 million

$46 million

$42 million

$25 million

$12 million

$8 million

$5 million

THE PREDICTION TRADE

Political Fortunes

Serious money can be made and lost when prediction markets flip—and in some cases flip back again. Here are a few of the most memorable market comebacks from recent elections.

By Mike Reddy

From left: President Joe Biden, Virginia Gov. Glenn Youngkin and New York Mayor Eric Adams

WEAK END WITH BERNIE

More than 140 million shares traded hands in PredictIt’s “Who will win the 2020 Democratic presidential nomination?” market, and it’s no surprise why. The market launched in August 2017 and spent the bulk of its three-year lifespan fiercely contested among a total of 33 contracts.

Then-candidate Joe Biden was almost always the favorite—something that was likewise reflected in the polls. Six months before he even announced he was running, 33% of respondents to an October 2018 CNN/ SSRS poll put Biden far ahead of the pack.

But prediction market traders and political junkies alike remember that the race was anything but a lock.

Besides Biden, candidates Bernie Sanders and Elizabeth Warren each saw daily average trade prices on PredictIt reach above 50¢, implying the market was forecasting they had greater than 50% odds of securing the nomination.

By Jan. 25, 2020—a little over a week before the Iowa caucus—the race that looked like it was Biden’s to lose had flipped in Sanders’ favor. Adding insult to injury, Sanders had a stronger showing than Biden in Iowa, pulled off a narrow victory in the New Hampshire primary a week later and went on to win the Nevada caucus a little over a week after that.

Sanders looked unstoppable. On Feb. 11, the day of the New Hampshire primary, Biden shares traded for their lowest price ever, at 6¢, and spent 17 straight days trading under 15¢ on average.

Meanwhile, Sanders was trading as high as 53¢ with no sign of slowing down.

Who will win the 2020 Democratic presidential nomination?

$1

Average trade price ($) .75

.50

.25 Joe Biden Bernie Sanders

0

Jan 2 Jan 13 Jan 25 Feb 6 Feb 18 Mar 1 Mar 13 Mar 25 Apr 6 Apr 18 Apr 30

PredictIt.org

Then, on Feb. 26, South Carolina Rep. Jim Clyburn endorsed Biden just three days before his state’s primary. Biden’s share prices jumped to 23¢ that day, and after winning the South Carolina primary, his average trade price never dipped below 25¢ again.

Early March marked Sanders’ descent and Biden’s return to the top, where he would remain until he comfortably secured the Democratic nomination for President of the United States.

⊲ TRADERS WHO BOUGHT JOE BIDEN SHARES UNDER 15¢ SAW RETURNS OF AT LEAST 566.7%.

Biden shares traded for their lowest price ever, at 6¢, and spent 17 straight days trading under 15¢ on average.

Which party will win the 2021 Virgina gubernatorial election?

$1 Democratic Republican

Average trade price ($) .75

.50

.25

Who will be elected New York City mayor in 2021?

$1

Average trade price ($) .75

.50

.25 Eric Adams Andrew Yang Kathryn Garcia

0

Sep 3 Sep 13 Sep 23 Oct 3 Oct 13 Oct 23 Nov 2

PredictIt.org

VIRGINIA? I HARDLY KNOW YA

0

Mar 2 Mar 29 Apr 25 May 22 Jun 18 Jul 15 Aug 11

PredictIt.org

MAYORAL MELEE

When it comes to the 2021 Virginia gubernatorial election, whether you look at the polling averages of FiveThirtyEight and RealClearPolitics or the prediction markets of PredictIt, you’ll essentially see the same thing: long, dull trend lines that flip dramatically in the final days.

Democrat Terry McAuliffe, the 72nd governor of the state from 2014 to 2018, was the favorite from the get-go against Republican businessman Glenn Youngkin.

In PredictIt’s “Which party will win the 2021 Virginia gubernatorial election?” market, Republican shares traded under 20¢ for nearly five months from December 2020 to May 2021. But it was Youngkin who would come out on top and win the election by over 63,000 votes.

When did the flip happen?

Republican and Democratic shares began inching toward each other until reaching a virtual dead heat on Oct. 29, 2021, when Democratic shares traded for an average of 53¢ and Republican shares traded for an average of 50¢.

The next day, Republican shares eclipsed Democratic shares for the first time, at 52¢ to 51¢, respectively. The rest is history.

Political pundits suggest it was Youngkin’s campaign emphasis on education—and especially parents’ role in their children’s education—that made the difference in the election. McAuliffe’s “I don’t think parents should be telling schools what they should teach” remark during a September debate certainly didn’t help.

⊲ TRADERS WHO BOUGHT REPUBLICAN SHARES UNDER

20¢ SAW RETURNS OF AT LEAST 400%.

HOW PREDICTION MARKETS WORK

Prediction markets use real money to forecast outcomes of events. Contracts trade between 1¢ and 99¢, and the price reflects the market’s forecasted probability of an event occurring. When an outcome is reached, correct contracts pay out $1, and incorrect contracts become worthless. Andrew Yang seemed like a shoo-in for New York City’s 2021 mayoral election—at least at first. As a Democratic presidential candidate just the year before, Yang had name recognition, energized supporters and early polling leads.

In PredictIt’s “Who will be elected New York City mayor in 2021?” market, Yang shares traded as high as 73¢ in late April 2021, and it looked like the former presidential hopeful would soon be in charge of The Big Apple.

At the same time, Brooklyn Borough President and retired New York City Police Captain Eric Adams had shares trading in the teens, down from the mid to upper 20s a month prior. In total, his shares spent 17 consecutive days in April and May trading under 20¢ on average.

Things didn’t look good, but Adams got a boost from an unlikely place: Andrew Yang.

From criticizing unlicensed street vendors, calling Times Square his favorite subway station and tasteless debate gaffes about mental illness, Yang and his campaign unraveled as New Yorkers questioned whether he was experienced enough to serve as their mayor.

Then, in June, the early front-runner became the first in a field of 13 Democratic candidates to drop out of the race.

Still, it wasn’t a sure thing for Adams after he overtook Yang and became the new front-runner. Former sanitation commissioner Kathryn Garcia was within striking distance when initial rankedchoice preferences were revealed—with over 120,000 absentee ballots yet to be counted. On July 1, Garcia shares traded up to 61¢ as traders grappled with the very real possibility that she could win. But it was ultimately Adams who came back from behind again, went on to beat Republican Curtis Sliwa in the general election and became New York City’s mayor.

More TPT

Watch the podcast ⊲ TRADERS WHO BOUGHT ERIC ADAMS SHARES

UNDER 20¢ SAW AT LEAST 400% RETURNS.

THE NORMAL DEVIATE

Short Puts in Small Stocks

Low-priced stocks and short put strategies are essential ingredients for active investors, but challenges arrive when mixing them

By Tom Preston

A

contrarian options trader might see a bullish opportunity when a stock gets pummeled to a low price. It’s a Pavlovian reaction, but there’s nothing wrong with that. There’s money to be made by taking on risk.

When an increase in implied volatility accompanies the sell-off in a stock, a trader speculating on a bullish bounce might use a short put. Because a short out-of-the-money (OTM) put has a lot going for it as a bullish strategy—higher credit, high probability of profit and positive theta. But when a stock’s price gets too low, a trader looking to short a put might run into a battle between percents and points.

Put simply, if a $100 stock moves up $1, that’s 1 point and also 1%. If a $10 stock moves up $1, that’s 1 point but 10%. A $1 change is the same amount no matter what the stock’s price, but it can represent a different percentage change.

That’s important because while people trade and invest to make dollars to spend or save, options’ theoretical values are derived from percents. To explain, let’s take a little statistical detour.

An OTM option is valued by how far its strike price is from the current stock price along the normal distribution curve, then deriving a probability of the stock price reaching the strike price from the normal distribution. The farther the strike price is from the stock price—all other things being equal (i.e., time to expiration and volatility)—the lower the probability that the stock will drop (in the case of an OTM put) to the option’s strike price, and the lower the option’s value.

But the normal distribution doesn’t use the stock price and strike price themselves. It converts them to percents. The current stock price has a 0% difference from itself, so it sits at the peak of the normal distribution curve

Short put selection

Higher-priced stocks give active investors more flexibility with strike selection.

Viatras VTRAS @$10 Novo Nordisk NVO @$110

5% OTM 105 Strike Put $6.15

9 Strike Put $0.27 10% OTM 100 Strike Put $4.20

97.5 Strike Put $3.40

15% OTM

8 Strike Put $0.07 20% OTM at the mean. The strike price of a short OTM put is some percent away from the current stock price, and it sits somewhere to the left of the peak. For example, the 95 strike is 5% lower than a $100 stock price. The way an options pricing model looks at it, the $100 stock price sits at 0%, and the strike price sits at about -5%.

Now, here’s the problem with low-priced stocks. The exchanges where options are traded determine their strike prices, as well as the minimum difference between adjacent strikes. The exchange considers the price of the stock as well as the expected interest in trading options at a particular strike when adding new strikes to an expiration.

For example, a $1,000 stock like Tesla (TSLA) has a minimum of 5 points between strike prices, e.g., 945 to 950. A $200 stock like Netflix (NFLX) has a minimum of 2.5 points between strikes. SPY (the S&P 500 Exchange-Traded Fund) has 1 point between strikes. The difference is point-based, not percent-based.

When a stock price drops, the number of points that a strike price is away from the current stock price becomes a larger percent. The larger percent translates into a lower probability the stock will reach that strike, and in turn, makes an option at that strike price cheaper.

For the “Greeks” geeks, how much a change in the percent difference between the strike price and the stock price impacts the option price is known as an option’s elasticity.

There’s a formula for it, but it’s not widely used because trading is done in points, not percents. But the impact of elasticity combined with low stock prices is that they can reduce the flexibility that options provide, as well as the actual dollar amount of profit a contrarian trader can make on a short put on a beaten-down stock.

Take two stocks in the pharmaceutical industry: Viatris (VTRS) and Novo Nordisk (NVO). Both have options traded on them and have similar implied volatilities. They’ve had some sharp drops in 2022, and could be appealing to traders for bullish strategies. But Viatris is a $10 stock, and Novo Nordisk is a $110 stock.

Looking at options with 56 days to expiration, the 9 put is the first OTM put strike for Viatris. It’s 10% OTM and valued at $0.27. The next OTM put for Viatris is at the 8 strike. It’s 20% OTM and valued at $0.07. For Novo Nordisk, the first OTM put is at the 105 strike with a 4.5% OTM and valued at $6.15. The next OTM put is the 100 strike with a 9% OTM and valued at $4.20. The last OTM put is the 97.5 strike with a 11% OTM and valued at $3.40.

Takeaways

⊲ Cheap stocks can be attractive to trade. But cheap options? Not so much. ⊲ Betting on a bounce can be a good strategy—you’re rewarded for taking risk. ⊲ Percentages matter to options, but points matter to active investors.

This shows that the large percentage difference between strikes in low-priced stocks knocks the premiums of the OTM options down quickly. In Viatris, traders don’t have much choice between selling the 9 put and not having much room for the stock to drop, versus selling the 8 put and only collecting $7 of max potential profit. Novo Nordisk’s puts give traders more flexibility in not just selecting which OTM put to sell, but because they have higher premiums, they can potentially be closed for profits sooner. Yes, the linear relationship of option prices to stock prices is a factor in Novo Nordisk’s larger put values, but the elasticity of options is playing a big role, too.

Tom Preston, Luckbox contributing editor, is the purveyor of all things probability-based and the poster boy for a standard normal deviate. @thetompreston

When an increase in implied volatility accompanies the sell-off in a stock, a trader speculating on a bullish bounce might use a short put.

Listen Here

Truth or Skepticism

Tom Sosnoff, entrepreneur, options trader and co-CEO of tastytrade, joins Dylan Ratigan, businessman, author and former host of MSNBC’s The Dylan Ratigan Show, for a weekly podcast covering everything from sports and investing to politics and monetary policy. One’s an iconoclast, and the other’s a contrarian. Tune in each week to find out who is who. It’s unscripted and unpretentious—some like to think of it as rants, but refined.

The Prediction Trade

If you can trade it, or bet on it, you can bet they'll talk about it on The Prediction Trade— the only podcast for gamblers, traders, investors, math geeks, data freaks and superforecasters devoted to the intersection of probability, prediction and profit. Each episode features expert guests with proprietary forecasting models and insights into the outcomes of prediction market events. So whether you live to bet or bet to live, check out the next episode of The Prediction Trade.

Truth or Skepticism and The Prediction Trade are available on your favorite podcast platform and the tastytrade financial network's YouTube channel.

DO DILIGENCE QUIET FOUNDATION HELPS PROACTIVE INVESTORS UNDERSTAND THEIR PORTFOLIOS

Down But Not Out

When euphoria fades, the hangover may drag down the price of a healthy company’s stock

By James Blakeway

T

echnology stocks are taking a hit this year, but it’s important to remember the lessons of history. When fear takes over, prices can fall well below their theoretical value. Some—but not all—will rally back to prior levels.

Think back to the end of the postdot-com slump in 2002. Stocks were beaten down for nearly two straight years after the peak of the bubble in 2000. Many companies didn’t survive, proving their lofty valuations were nothing but a pipe dream.

Companies like Pets.com and eToys.com went bankrupt or were bought out. The bubble had to burst to bring on a necessary re-evaluation of the inherent value of many companies, but it also took down legitimate stocks that continued to be profitable and are now powerhouses in the S&P 500.

By the time Adobe (ADBE) hit its $41 peak in November 2000, the company’s PDF technology was 7 years old and its Photoshop software was 11 years old. The company’s stock began the millennium by rallying from below $17 to above $40. But that’s where it ended, as the stock fell precipitously and consistently for nearly two years, bottoming out at $8.32 in August 2002.

In that time frame, earnings remained steady. Some quarters were better than others, but profits were consistent. Adobe, like many other stocks, was dragged down when the end of the dot-com euphoria brought panic selling. Perhaps Adobe wasn’t worth $41 in 2000, but the continued growth of its businesses has turned it into a $206 billion company.

Can’t keep ‘em down

The dot-com bust, a necessary re-evaluation of the inherent value of many companies, also took down stocks that are now thriving in the S&P 500.

Symbol ADBE

High price in 2000

$41.36 AMD

BBY $47.50 $25.17

Low price (2000-2002) % Loss in dot-com slump March 31, 2022

$8.32 $3.20 $6.53

-79.9% -93.3% -74.1%

$455.62 $109.34 $90.9

Return from lows

5377% 3317% 1292% EBAY $12.27

$2.81

-77.1%

$57.26

1936%

Source: tastytrade

Best Buy (BBY) was also yanked down by the early millennium stock sell-off. By the turn of the century, the company was trading with a price-to-earnings (P/E) ratio of 17, and it now has a P/E ratio around 9. (See Tactics Basic on p. 58 for more on P/E ratios.) Even though Best Buy was possibly overvalued in 2000, it likely didn’t deserve to plummet below $7. Twenty years later, competitors RadioShack and Circuit City were long gone, and Best Buy remains alive and well.

Advanced Micro Devices (AMD) has almost become a household name as consumers scramble for graphics cards to build powerful PCs for gaming and cryptocurrency mining. In 2000, the company was trading at $47 per share and had a P/E ratio of around 37. That P/E ratio is similar to the first quarter

Buying stocks when others are selling can be a grueling endeavor.

of 2022 with the stock’s recent selloff. The company hit a rough patch in the early 2000s and had some losing quarters in 2001 to 2003. However, investors who believed in the company were handsomely rewarded because the shares trading at $3.20 in 2002 were worth as much as $164 last year. eBay (EBAY) was founded in 1995 and went public in 1998. After a huge rally in 1999 and another in 2000, the stock peaked just over $12 in March 2000. The company’s collapse came swiftly, with the stock bottoming out at $2.81 in December 2000. While many internet stocks continued to fall throughout 2001

Comeback kid

Analysts are mostly bullish about Meta making a comeback.

$350

$300

$250

$200

$150

Jan 2019 May 2019 Sep 2019 Jan 2020 May 2020 Sep 2020 Jan 2021 May 2021 Sep 2021 Jan 2022 May 2022

Source: tastytrade

and 2002, eBay found its lows early in the downturn, recovering some of its value in the next two years. While Amazon became the internet shopping sensation and Pinterest brought many small businesses to wider audiences, eBay soldiered on. In 2022, eBay is a $32 billion company, and the stock reached an all-time high last year of more than $80 per share.

So, what’s the moral of the story? While euphoria may cause long periods of stock market rallies, the resulting hangover may drag down legitimate companies with solid business models. Often, stocks fall below their actual value and underrepresent their future potential.

One company that may present a comeback opportunity is Meta Platforms (FB), the parent company of Facebook, Instagram and WhatsApp. Trading around the $200 level in late April, Meta is at about the same price as before the pandemic, except now the company is more profitable. In January, Meta was trading with a P/E ratio around 27, meaning shares were valued at 27 times the earnings for the prior year. In April, the P/E ratio was 16. Wall Street analysts are predomi-

Bears have pummeled tech stocks so far this year.

nantly bullish about Meta making a comeback. The average buy-side ratings are over $300, meaning analysts anticipate the stock will recover at least half of its losses from that $384 high.

Time will tell if Meta shares can recover to anywhere near prior levels. Investors willing to find out will likely have some rough days ahead as the bears continue to hit tech stocks in 2022. As with those who held onto worthwhile stocks after the dot-com bust, waiting for a Meta revival will take patience.

Buying stocks when others are selling can be a grueling endeavor. Investors are often early to the party and have to endure some downside pain before reaping the benefits of the reversal.

James Blakeway, Luckbox technical editor, serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides fee-free investment analysis and trade ideas for self-directed investors. @jamesblakeway

CRYPTO CURRENTLY THE STATE OF CRYPTOCURRENCIES AND DECENTRALIZED FINANCE

Bitcoin’s Fifth Comeback

The cryptocurrency has soared in value repeatedly and could pull it off again

By Mark Helfman

B

itcoin imploded, but that doesn’t mean it can’t come roaring back with increased trading volume and much greater value.

Let’s begin with recent history. After reaching an all-time high of $68,885 in November 2021, bitcoin lost more than half its value. That’s an extreme drop, even for an asset known for volatility.

Since May 2021, search volume has declined 80%, and the number of active users has dropped 27%. Looking only at the largest exchanges, weekly trading volume has fallen from 94,000 bitcoins to 10,000 bitcoins during the same period.

Thanks to the private nature of bitcoin transactions, stats aren’t available on how much of the cryptocurrency is bought and sold outside of the exchanges. But it’s safe to assume volume has decreased.

This is happening to an asset that rose from $0.06 to $32 in its first bull run, $2 to $1,200 in its second bull run, $166 to $20,000 in its third bull run and $3,160 to almost $69,000 in this most recent run.

Some say that’s the last time bitcoin’s price will ever go up. A 2,000% run? Never again. Can’t happen a fifth time.

Even the most ardent bitcoiner would have a hard time believing its price will reach $800,000 anytime soon, but a 500% upswing doesn’t seem outside the realm of possibility. That would put bitcoin’s market cap at roughly $4.5 trillion.

That’s crazy for any other market but a letdown for anybody who prospered in any of bitcoin’s previous bull markets.

Mountaineering

Bitcoin prices have scaled the heights and then descended precipitously. Can the pattern continue?

BTC

PEAK 3

Jan 2018 Jan 2019 Jan 2020 PEAK 4

Jan 2021 Jan 2022 $70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

0

So, some might ask what could possibly carry bitcoin’s price to such lofty heights. The fact that it’s happened before hardly seems compelling. That logic may work for gold or stocks, but those assets have centuries of history. Bitcoin’s only had 13 years.

Yet bitcoin has a lot going for it.

Technology. Last year, the Taproot upgrade made bitcoin’s network easier to scale. New payment technology, like Strike and Opennode, brought transaction time and fees almost to zero—less than conventional payment processors. While that doesn’t mean anything for bitcoin’s price, it adds utility and builds natural demand.

Millennials. Investopedia’s most

A 500% upswing doesn’t seem outside the realm of possibility for bitcoin.

recent financial literacy survey indicated that more millennials own cryptocurrency than stocks, a finding that matches many older studies. This generation is set to inherit at least $60 trillion in the coming years, assuming the economy cooperates, and it’s fair to wonder how much of that inheritance will go into bitcoin instead of legacy assets.

Generation Z. That same study showed that Gen Z owns less crypto but expects that cryptocurrency will deliver better returns than any other financial asset listed in the poll. Members of that generation are just getting their first “real” jobs and the disposable income that goes along with employment. It’s hard to think they won’t put some of that money into bitcoin.

Low- and middle-income coun-

tries. Faltering currencies and looming debt crises may drive residents of some nations to put money into bitcoin to protect their wealth. With Western countries sometimes inclined to confiscate foreign assets, bitcoin could seem like a safe haven.

Network effects. While bitcoin’s price remains lower now than a year ago, the number of daily transactions is down only 10% and the size of the average transaction has tripled. The number of bitcoin wallets continues to rise, with clear accumulation among those with 10 or fewer bitcoins. Cost basis dropped substantially, suggesting this isn’t a market of HODL (hold on for dear life) investors who bought the peak and hope the market will recover. Instead, active buyers are gaining a larger share of the market as speculators sell at a loss.

“You should see the other guy.”

Investors need an asset that’s already priced low but also carries a high upside. After all, bonds are getting smashed, gold is struggling to get above its 2020 high, stocks are sliding, U.S. mortgage applications are down 50% since last year, private equity is facing the end of the cheap money era, and commodity prices seem less predictable than ever (if they ever were).

Perhaps that’s not an endorsement of cryptocurrency as much as an indictment of the legacy financial system. Risky investments offer paltry returns, safe investments are guaranteed money-losers, and inflation has turned cash into a financial burden.

At least with bitcoin, investors might get ahead on their money.

Some may scoff. But as befits any asset that’s had upswings of 2,000% to 20,000% every few years, the cryptocurrency market needs time to recover.

How long? If only somebody knew.

As with other financial assets, momentum plays a big role. Once bitcoin’s price keeps increasing long enough to win the confidence of new buyers, everything else will take care of itself—just as it always has in the past.

Mark Helfman, crypto analyst at Hacker Noon, edits and publishes the Crypto is Easy newsletter at cryptoiseasy.substack. com. He is the author of Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency. @mkhelfman

Stocks. Futures.Crypto. One platform.

You Deserve It All.

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tastyworks, Inc. is a member of FINRA, NFA, and SIPC.

TACTICS: BASIC

Return to Value

Savvy bargain hunters search for underpriced stocks

By Eddie Rajcevic

V

alue investing may seem like a thing of the past in an era of high-frequency trading, special-purpose acquisition companies (SPACs) and meme stock mania. But that doesn’t have to be the case. Value investing is making a comeback in a year characterized by rising interest rates, heightened uncertainty and resets in the valuations of many companies.

It’s an investment strategy based on picking companies trading below fair value. It works because the market tends to overreact to news, resulting in large price movements that aren’t necessarily representative of the long-term performance of a stock. Investing is like shopping, and value investors are savvy shoppers who look for a sale.

The price-to-earnings ratio, or P/E ratio, helps investors find stocks that are “on sale.” To calculate the P/E ratio, divide the current stock price by the company’s earnings per share. The resulting P/E ratio tells investors how much they will pay per share for $1 of a company’s earnings. That provides insight into the valuation of a stock and expectations for growth.

Price may be a big factor in how newer investors view a company’s valuation. Suppose company A is $20 a share and company B is $50 a share. At first glance, company A may seem like the more attractive investment. However, price alone

Intel on Sale?

Chart headline Ipsantio ruptiseatio aperit In 2022, Intel (INTC) P/E ratio is at its lowest level in the past decade. Chart explainer Ad utatibu sciasitaque perupta sperum doluptat aliqui iuntibus aces si occabor maximporro tempori

INTC average annual P/E ratio 20

15

$70

$60

$50

$40

10

$30

INTC stock price

5

$20

Source: Unt voluptate sum

$10

0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

0

Source: INTC

can’t paint the full picture, and that’s why investors should use P/E ratios to analyze the companies.

Here’s an example: Let’s say company A has earnings of $1 per share, and company B has earnings of $10 per share. That means company A has a P/E ratio of 20 and company B has a P/E ratio of five. Simply put, $1 of earnings in company A would cost $20, while $1 of earnings would cost $5 for company B. Why pay more for less?

When using a P/E ratio to assess a

The market tends to overreact to news, resulting in large price movements that aren’t necessarily representative of the long-term performance of a stock.

stock’s value, compare it with other stocks in the same industry because every industry has a different range of P/E ratios. A high P/E ratio is not always problematic because the market may be pricing in greater growth in future years. However, if the P/E ratio is much higher than comparable companies, investors may end up paying more for every dollar of earnings.

Value investors search for companies with lower-than-average P/E ratios hoping earnings will increase and lead to a higher stock price. A negative P/E ratio indicates the company has not reported profits, a common occurrence for new firms. If a negative P/E ratio persists for years, it may become a concern.

THE TECHNICIAN A VETERAN TRADER TACKLES TECHNICALS

Cramer’s Comeuppance

A famous stock picker got almost everything wrong with a set of predictions

By Tim Knight

N

early two years ago, stock prognosticator Jim Cramer created a seminal video called The Magnificent Seven to showcase stocks he considered the superstars of the COVID-19 pandemic. All had achieved cult status despite weak earnings.

“What if earnings just don’t matter anymore?” Cramer asked rhetorically. Readers can see how he addressed that issue by searching for “Cramer magnificent seven” on YouTube.

Let’s review the stocks, in the order he presented them, to see how they’ve performed since the video was released on Oct. 19, 2020. (Percentages as of May 9, 2022.)

Netflix (NFLX)

▼ 67% The first stock examined in the video was the streaming video service Netflix, which Cramer cited as a logical pick because “people won’t go to movies anymore” during the pandemic.

“Four fall from grace,” and “The black sheep” begin when Cramer’s video was created and provide a quick way to track performance.

Netflix stock meandered for many months, but in the latter half of 2021, it gained strength, peaking at above $700 before losing a breathtaking 70% of its peak value.

PayPal (PYPL)

▼ 61% PayPal has been public much longer than most of the other stocks in Cramer’s group. After he recommended it as a long position, it did indeed ascend in price, peaking in July 2021.

Four fall from grace

Square, PayPal and Netflix saw some decent returns after Jim Cramer’s video before eventually falling. Zoom, on the other hand, started a steady descent almost immediately.

SQ

PYPL

NFLX

ZM

40%

20%

0%

-20%

-40%

-60%

-80%

Nov 2020 Jan 2021 Mar 2021 May 2021 Jul 2021 Sep 2021 Nov 2021 Jan 2022 Mar 2022 May 2022

Source: tastytrade

The cumulative returns on the seven stocks Jim Cramer touted would have been -47%.

Since then, however, it has formed a large rounded top above the $226 level, and an even larger top above the $179 level, crumbling lower and lower in successive stages.

Although Cramer described PayPal as having “a remarkable ecosystem” and being “all about the democratization of money,” those buzzwords did not save it from a mesmerizing demise.

Peloton (PTON)

▼ 89% Peloton truly benefited from the COVID-19 lockdown. Cramer described it as being a way to play “the athletic-pandemic angle” and said that it was “the one stock you can buy instead of going to the gym.”

Between September 2020 and November 2021, the stock formed a tremendous right triangle topping pattern, then plunged when the company reported declining sales and a significant quantity of unsold inventory.

Roku (ROKU)

▼ 60% Home entertainment companies thrived during the pandemic lockdown, and Roku, a streaming video-related organization, was no exception. It also got Cramer’s nod, as he declared “no one under 30 can tolerate commercials.”

In February and July 2021, Roku double-topped in price action and began a nearly ceaseless plunge.

Square (SQ)

▼ 54% Square, the payment processing company, was a highly valued “unicorn” before it went public. Cramer said Square “stands for the empowerment of the little guy.”

He characterized the company’s prospective performance by saying, “it doesn’t seem to matter what these guys do.”

Although the company did increase in value immediately after the release of the video, the stock has not performed well in the long term.

Tesla (TSLA)

▲ 87% Finally, a “magnificent” pick that actually lived up to the name! Tesla was the one and only stock among Cramer’s seven that’s now worth more than when he chose them.

Even though it’s below the lifetime peak it reached Nov. 4, 2021, it consistently performs as a tripledigit winner. The stock has been hammering out a steady series of higher highs and higher lows.

From a charting point of view, the stock does have one black mark against it: the trendline failure of January 2022.

Zoom (ZM)

▼ 83% The Magnificent Seven video was released precisely when Zoom was reaching the highest price in its history at $588.84.

Cramer described the company as the leader of the magnificent seven and said, “This is the Zoom economy, and we just live in it. It’s only just begun to monetize all those users. Any disappointment is just one more reason to buy them.”

Unfortunately, there has been ample disappointment in Zoom stock since then and absolutely no reason to indicate a buy.

The black sheep

As all of Jim Cramer’s other picks cratered, Tesla held onto its strong returns.

TSLA

ROKU

PTON 200%

150%

100%

50%

0%

-50%

Nov 2020 Jan 2021 Mar 2021 May 2021 Jul 2021 Sep 2021 Nov 2021 Jan 2022 Mar 2022 May 2022 -100%

Source: tastytrade

Tesla is the one and only winner among Cramer’s picks. The other stocks he identified were bordering on “meme” status.

What’s the difference?

The numbers don’t lie. If someone purchased an equal amount of these seven stocks the day the video was released, the cumulative return would have been approximately -47%.

Now, if the market as a whole had gone down 35%, well, that’s simply unfortunate timing. But on the contrary, the plain old boring SPY (S&P 500 Index) went up 18% during the same period, which means this basket of stocks underperformed the market by an eye-watering 65%.

Tesla is the one and only remaining winner among Cramer’s picks. The other stocks Cramer identified were bordering on “meme” status. By recommending a buy despite lackluster company performance, Cramer suggested a flawed investment strategy.

Tesla was the outlier for a number of reasons:

Unlike most of the other seven stocks, Tesla was already a well-established, very large-cap company with an expanding product line and growing profits.

It did not depend upon a very specific circumstance (the COVID19 lockdown) for helpful business conditions. Companies like Zoom, Peloton, Roku and Netflix all benefited from the lockdown.

For whatever reason, Tesla’s robustness as a “cult” stock was vastly greater than that of Peloton. As a result, Tesla continues to be much hardier, even in the face of occasional overall market weakness.

It may be tempting to perceive these battered stocks as representing some kind of bargain. However, the bottom of the y-axis on a price scale is $0.00 and not the minimum price of a given security. From a charting perspective, only Netflix may ultimately make sense as an “on sale” security, assuming it eventually grinds its way down to about $150.

Tim Knight has been using technical analysis to trade the markets for 30 years. He’s the host of Trading Charts with Tim Knight on the tastytrade network and offers free access to his charting platform at slopecharts.com. @slopeofhope

TACTICS: INTERMEDIATE

Slow-motion Rewards

Incrementally scaling into a position can be a more prudent and sustainable way to play stock comebacks

By JJ Kinahan

K

irk Gibson came off the bench to pinch hit for the Dodgers in the 1988 World Series. Despite two injured legs and a stomach virus, he walloped a two-run homer that won the game and helped clinch the championship.

It was quite a comeback for Gibson and for Los Angeles. But a prudent trading strategy shouldn’t depend on such exhilarating turnarounds— explosive comebacks are neither predictable nor sustainable. It’s the grinding, mundane recoveries that lead to successful long-term investing.

Those slow-motion comebacks require segueing in and out of trades instead of assuming an all-or-nothing mentality. Let’s use Apple (AAPL)—a widely held and widely traded stock—to illustrate that point.

At the end of January, Apple was trading at $162 per share, down from a $182 high earlier in the month. Some investors would see this down move and want to get long on the stock with what’s called “buying the dip.” However, as with all investment decisions, investors should have a price and a time in mind when making a trade.

If capital is available, an investor might choose to buy 300 shares and hold them for four months. That investor could do that at the outset or establish a comeback over time. To accomplish the latter, the investor would buy a first round of 100 shares. If the stock loses value, an investor could purchase another 100 shares at the lower price. If it falls in price again, the investor could buy another 100 shares and then sit back and wait

Doubling down

Turbulent markets in strong companies enable investors to lower their average purchase price.

APPLE, Scaling into 300 shares Average Price: $157

$185

$180

$175

$170

$165

Bought 100 @ $162

Bought 100 @ $152

Jan 3 Jan 13 Jan 23 Feb 2 Feb 12 Feb 22 Mar 4 Mar 14 Mar 24 $160

$155

$150

for the stock to make a comeback.

The investor should also set a target price to get long. In this case, that price should be between $155 and $160. But comebacks aren’t immediate. Apple’s stock eventually rallied, coming back to trade above $174 between March 25 and April 5, providing a tidy little profit. Just the same, investors using this scaling approach should set a time and price target. Then they have to be patient yet poised—which is also an art.

As investors become more experienced at scaling, they develop a better sense of choosing logical points of entry and exit. An investor just getting started might prefer to start with just price, then identify three or so possible intervals. After becoming

Grinding, mundane recoveries lead to successful long-term investing.

More Gibson

Watch the 3-2 pitch more comfortable, an investor could use the Fibonacci sequence or more frequent intervals to increase the size of the overall position.

The point is that the basic concept does not change, but the way it’s adopted may change to fit an investor’s wants and needs. Although a dramatic Gibson-style comeback home run is exciting, scaling empowers investors to make a series of less dramatic but still profitable smaller comebacks.

JJ Kinahan is vice president and chief market strategist for tastytrade. @thejjkinahan

TRADER

1 2

5 3

4

PICTURED LEFT

1. Poster from the “He Said She Said” tour

2. Trade window depicting a broken wing butterfly setup 3. Price charts with various time frames

4. IRA account

5.The tastyworks app on iPad

BWBs on the call side with the debit spread wider than the credit spread if I feel exceptionally bullish. To make the BWB free, you need the underlying to move in your direction, so you can close the long option on the wider side and buy another one closer to the shorts to make the longs equidistant. That releases the buying power, and you now have a regular symmetrical butterfly. The goal is to do that transaction for less than the credit you received initially, so you lock in a profit and have a trade that wins in any direction.

Average number of trades per day?

Eight

MEET

ANETA GENOVA

What percentage of your outcomes do you attribute to luck?

I rarely attribute outcomes to luck unless they’re scalps on futures that not only immediately go in my direction but keep going and going in the right direction!

Home/Office location

New York City

Years trading

12

How did you start trading?

I was running my own business for small leather goods about 17 years ago, and when I started being profitable, my accountant advised me to go to Fidelity and invest my money with them. I bought some mutual funds based on their advice, and nothing much happened for what felt like a very long time. I didn’t like the feeling of being so passive and detached. I wanted a lot more engagement than mutual funds offered. I like to make my own decisions and wanted to participate in the market, so I started trading stocks and eventually worked my way to options. I tried four or five brokerages and took courses before I found tastytrade and tastyworks, where

Worst trading moment?

I finally found my niche and a community of traders who are fun and engaged every day. I have very little patience and like variety, so I love that options contracts have many expirations and offer a wide array of strategies.

Favorite trading strategy?

I love variations of ratio spreads, and two of my favorite strategies are 1-3-2 put spreads and broken wing butterflies (BWB). Both are high-probability omnidirectional trades that give you a lot of flexibility to be right. There is also the excitement of the max profit zone and the opportunity to make the BWB free. BWBs can be explained as a debit and a credit spread with shorts at the same strike where usually the credit spread is wider than the debit spread. That eliminates risk to one side, and the debit spread gives you an extra profit zone on the other side. I also use Some of my worst trading moments have been in crude oil and silver futures. Crude oil can go in one direction relentlessly for a very long time, and it certainly caught me a couple of times with naked futures. My worst experience was in November 2020 when crude oil just went straight up for weeks. I truly misjudged how much it can move, and by the time I started hedging my position with options, there wasn’t much I could salvage. What I learned is not to be stubborn and to cut my losses much sooner, rather than thinking that I know something more than other traders. After that year, I’ve only traded crude oil options and scalped small futures. The lesson for me was to stay small so one trade doesn’t take a big chunk out of my portfolio.

Favorite trading book Trading in the Zone by Mark Douglas

THE LAST PICTURE

Get Outdoors

Just as the Wooden Shoe Tulip Festival in Woodburn, Oregon, celebrated nature’s bounty with a rainbow of 40 acres of tulips, Luckbox will explore the outdoors in the July issue.

Look for trends in camping, RV travel and outdoor recreation. Discover how a couple found each other and followed their dream of living on the road. Meet other professionals who have embraced “working from home,” no matter where that may be.

Find out how major home improvement brands have leveraged the pandemic-induced outdoor living trend—decks, porches, pools and elaborate outdoor living spaces—and what that may mean for their stock prices.

Discover how advanced equipment technology has changed the game of golf and what manufacturers are doing to drive the debate.

Get the word on music festivals and how fans and members of the industry can reduce the environmental impact of outdoor shows.

You’ll find more than just tulips in our coverage of the outdoors.