COVID-19 – Adding Speculative Positions

Introduction:

Now is as good time as any to put on some speculation plays considering the fact that this COVID-19 black swan event may be a once in a lifetime opportunity. This COVID-19 induced sell-off has been the worst since the Great Depression in terms of breadth and velocity of the sell-off. This health crisis has crushed stocks and decimated entire industries such as airlines, casinos, travel, leisure and retail with others in the crosshairs.


The broader indices have shed approximately a third of their market capitalization into the month of April. Some individual stocks directly related to the COVID-19 pandemic have lost ~50% to well over 80% of their market capitalization. Investors have been presented with a unique opportunity to start speculating on some of these names as sharp rebound candidates. Over the course of this market sell-off, I have started to speculate on a variety of names with small amounts of capital. Let’s not confuse speculation for investment thus these trades are purely speculative for a sharp potential recovery. These names have been battered to levels not seen since the Financial Crisis. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), American Insurance Group (AIG), The Gap (GPS), Square (SQ), Lowes (LOW), HP Inc. (HPQ), Walgreens (WBA), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA), Hasbro (HAS) and Twitter (TWTR) are some speculative names that have sold off ~50%-85%.

Evaporated Market Capitalization:

Entire industries and many individual stocks have been destroyed by the COVID-19 pandemic. Anything related to travel, leisure, retail, industrials and discretionary spending have been cut by 50% or more. Companies are being tested like no other time in history where the entire economy is at a standstill under the COVID-19 coast is clear. In the midst of this economic wreckage, speculation can potentially yield huge gains once this pandemic passes and companies can get back on their feet. Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), The Gap (GPS), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA) and Twitter (TWTR) are some speculative names that have sold off ~50%-85% (Figure 1).

Figure 1 – A slew of potential speculative stocks that have lost 50%-80% of their market capitalizations. Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), American Insurance Group (AIG), The Gap (GPS), Square (SQ), Lowes (LOW), HP Inc. (HPQ), Walgreens (WBA), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA), Hasbro (HAS) and Twitter (TWTR) are some speculative names that have sold off ~50%-85%.

Opening Speculative Positions:

I’ve opportunistically opened speculative positions have the potential to explode higher when the market inevitably rebounds. These stock positions have been purchased well off their highs and I’ve averaged down throughout this sell-off using small amounts of capital (Table 1). These speculative positions will serve as a small portion of my portfolio in an effort to aim for huge gains when the market recovers.


Table 1 – Initiating speculative positions throughout the market sell-off for securities that have lost more than 50% of their value.


Hasbro (HAS) was added as a speculative position and quickly turned into a 51% realized gain as a result. When the market has sharp drops it tends to have quick and drastic rebounds to the upside that can yield quick double digit gains.


Conclusion:

It’s a great time to add speculative positions to your portfolio in companies that have lost the vast majority of their value. These stocks have the potential to explode higher when the market inevitably rebounds. Hasbro was a recent example of taking a small position and then turning that into a 50% realized gain in a matter of trading days.

After this epic sell-off, some stocks are worth speculating on as these are too cheap to ignore. When you sell during a panic you may miss the market's best days as rapid sell-offs often lead to quick bounces. COVID-19 has sent shock waves through the markets causing market capitalizations to be wiped out across a slew of stocks. The COVID-19 induced sell-off has presented a great opportunity to add speculative positions. Names such as Expedia (EXPE), Wynn Resorts (WYNN), Capri Holdings (CPRI), MGM Resorts (MGM), American Insurance Group (AIG), The Gap (GPS), Square (SQ), Lowes (LOW), HP Inc. (HPQ), Walgreens (WBA), Yelp (YELP), Yum Brands (YUM), General Electric (GE), Ulta Beauty (ULTA), Royal Caribbean (RCL), Boeing (BA), Hasbro (HAS) and Twitter (TWTR) are some speculative names that have sold off ~50%-85%. This can serve a great speculative opportunity for any portfolio as this type of decline comes along once in a lifetime.

Disclosure: The author holds shares in AAL, AAPL, AMC, AMZN, AXP, CMG, DIA, DIS, FB, GOOGL, GS, HQY, IBM, JPM, KSS, MA, MSFT, QQQ, SBUX, SLB, SPY, TRIP, UPS, USO and X. However he may engage in options trading in any of the underlying securities. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets. For more engaging, short duration options based content, visit stockoptionsdad’s YouTube channel.


Originally published in partnership with INO.com

https://www.ino.com/blog/2020/04/covid-19-adding-speculative-positions/#.XpTjhchKjIU

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