This High Yielding Option Setup In BILL Is A Massive Win-Win
IDEA: Sell Bill Holdings $45 strike puts expiring 5/19/2023 for $100 per contract (Currently $1.00 market bid. Be sure to check prices.)
NOTE: Your broker will reserve $4,500 in buying power for every contract sold.
STATS:
-37.4% breakeven (We have this much “room” until we would be underwater at option expiry.)
15.6% annualized return
92.3% chance of max profit
COMMENTS: While many may write off BILL as one of the high flying, expensive, unprofitable tech companies that got caught up in the speculative madness of 2021, the company has changed significantly since that period. And, while still expensive, shares in this new-and-improved, profitable enterprise are coming into some really interesting territory from an entry perspective.
Historically, the company has increased revenue adeptly, as the top line has grown more than 600% since the IPO in late 2019. However, the complaint with the company has always been a general lack of profitability.
It finally seems as though management has begun to take this to heart, as over the last 12-month period Bill produced 77m in FCF, a first, and a record, for the company. With a more focused management — which has already proven it can execute and pivot when needed — and the recent 70% decline in shares over the last year, Bill is finally looking interesting.
We like these puts because they give us a big margin of safety, a great yield (>15%!), and a high probability of success. That said, we would be lucky to own these shares from $45 as well, should we get that chance.
RISKS: The company has diluted shareholders by 43% since the IPO. If the firm continues to use their equity as a weapon, instead of their newly retained cash flow, then the stock may be in trouble no matter the top or bottom-line performance. We expect that this risk will dissipate with the recent exhibit of stronger financial discipline. Earnings are also on the 4th of May.
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NOTE: Your broker will reserve $4,500 in buying power for every contract sold.
STATS:
-37.4% breakeven (We have this much “room” until we would be underwater at option expiry.)
15.6% annualized return
92.3% chance of max profit
COMMENTS: While many may write off BILL as one of the high flying, expensive, unprofitable tech companies that got caught up in the speculative madness of 2021, the company has changed significantly since that period. And, while still expensive, shares in this new-and-improved, profitable enterprise are coming into some really interesting territory from an entry perspective.
Historically, the company has increased revenue adeptly, as the top line has grown more than 600% since the IPO in late 2019. However, the complaint with the company has always been a general lack of profitability.
It finally seems as though management has begun to take this to heart, as over the last 12-month period Bill produced 77m in FCF, a first, and a record, for the company. With a more focused management — which has already proven it can execute and pivot when needed — and the recent 70% decline in shares over the last year, Bill is finally looking interesting.
We like these puts because they give us a big margin of safety, a great yield (>15%!), and a high probability of success. That said, we would be lucky to own these shares from $45 as well, should we get that chance.
RISKS: The company has diluted shareholders by 43% since the IPO. If the firm continues to use their equity as a weapon, instead of their newly retained cash flow, then the stock may be in trouble no matter the top or bottom-line performance. We expect that this risk will dissipate with the recent exhibit of stronger financial discipline. Earnings are also on the 4th of May.
All content is subject to our terms of service.
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