001 Piggish_Play - Bearish Strangle on Urban Outfitters (URBN)

May 25, 2020

URBN

TRADE OVERVIEW:
Entry Date: Monday - Tuesday, May 25th - 27th, 2020
Ticker: {URBN}
Sector: Retail - Apparel

STRATEGY AND POSITION DETAILS:
Strategy: Aggressive Bearish Strangle
Main Position: 80 PUTS $17.50 Strike Expiration (5/29) N/A
Offset Position: 10 CALLS $20.00 Strike Expiration (6/19) N/A

FUNDAMENTAL REASONING:
Aside from the entire sector missing street estimates by an average of triple digits (both top and bottom line), URBN is the clear choice for worst Q1 performance, missing consensus estimates by over 500%. The only award they won was providing the bleakest Q2 guidance in the sector. This company is either going bankrupt or will be struggling to survive for the next three quarters. I do not see a bullish fundamental argument. Finally, very recent analyst estimates have been slowly teasing down throughout the weekend. Once I see an actual “Sell” rating, it’s all over, in my opinion.

TECHNICAL REASONING:
Triple-top formed and confirmed on Friday with heavy headline resistance [support]. Volume speaks volumes - red days simply have several times more volume than green days. The gap from 17.50 to prior peaks is simply insurmountably high, given the recent lack of fundamental confidence. To that point, I believe that the sideways trend is now long enough to align with pre-COVID highs where the 3rd Cycle Wave down can begin. Also, I believe that both URBN and the major indices are experiencing heavy buying exhaustion, which leads me to believe that a corrective week is coming.
The tailwind from the broader market pullback will likely be the final push down for this stock.

POSSIBLE PITFALLS:
The stock is broadly oversold and tends to bounce violently at lows. Look back at the 5-year chart for evidence of the power behind these bounces. My logic is that if it does get a sustained and powerful bounce, it will continue to 20 and beyond. The call options have more time value, and thus, act as a perfect hedge in case the broader market surges over the next coming weeks.

BOTTOM LINE:
Polar Bear Candidate of the Year - I cannot find any reason to be bullish from a fundamental perspective. Buy short-term PUTS & offsetting calls for an aggressive strangle this week that can yield 5-6X given the clear 12 dollar target.

May 27, 2020

Note

Strangle worked well if calls were sold on the open. If you did sell them, noice job. Would re-hedge with 19 calls for Friday and add to Put position. Matter of time before retail goes from overbought to bankrupt.

Also, that was the strangest short squeeze attempt I've seen in some time. Appreciate the shakeout, nevertheless.

May 29, 2020

Trade active

Today's our day! This stock tends to mimic the market to a large extent, so given the shark (harmonic) move at the end of yesterday, I would expect a continuation today.

Plan: Think that URBN will FINALLY make a significant move down and capitulate (somewhat, hopefully). Check out Roku's chart when it first initially sold off from its all time high. This setup looks similar: would expect an open underneath the two near-term DMAs, then try to briefly test them, fail it even touch, and move down the same amount (or slightly more) than the dollar loss incurred yesterday.

Reasonably, I think 15.60 is when I'll consider selling half. Its annoying, but this stock is just that way. I will be closing out this trade by EOD today, hopefully selling at an average below 15, but will be fine taking an average up to 15.60.

Time for MMs to pay for patience, it's only fair.

May 29, 2020

Note

Looking primed for a shark attack. Also, looks like it could stay wedged between lower DMA and prior candle, unfortunately.

Odds are in our favor, be patient and wait for that dollar drop after it tests the averages thrice.

May 29, 2020

Trade closed manually

Win if you kept repeatedly strangling this up and down.

Lose if you were hoping MM didn't stand for Market Manipulator