Get Paid 13% In Cash By Betting On Rollercoasters

29 mars 2023

IDEA:
Sell Six Flags $20 strike puts expiring 5/19/2023 for $35 per contract (Currently $0.35 market bid. Be sure to check prices.)


NOTE:
Your broker will reserve $2,000 in buying power for every contract sold.


STATS:
-20% breakeven (We have this much “room” until we would be underwater at option expiry.)
12.7% annualized return
86% chance of max profit


COMMENTS:
That’s right! Your eyes do not deceive you - today we’re looking at Six Flags Entertainment. You know, that theme park you used to go to when you were little. Turns out that yup, they’re still around, and yup, they’re a public company.

And, if you would believe it, they’re a pretty good one.

While operating results from the past few years have been lackluster (Covid), their most recent results have been encouraging, as revenues have fully recovered from pre-pandemic levels, and free cash flow has almost fully recovered.

Hurting things?

The weak consumer certainly isn’t helping. With inflation taking a bite out of every family’s buying power, heading to the theme park may not be in as many budgets in the near future.

The good news? The stock has priced this in. Prior to 2020, SIX traded in a multiple range between 13x and 21x cash flow. Right now, you can pick up shares with this short put trade at less than 11x cash flow, which is very, very attractive. Either that, or you get an 86% chance of an almost 13% annualized return. Talk about a win-win.

Also, $20 is a great technical support level in the stock, which adds further confluence to this idea.


RISKS:
As a consumer facing company, if families opt for cheaper forms of entertainment, then SIX may see further cash flow pain. This could hamper share prices and cause losses to this trade idea. Also, earnings are on April 25th.

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