The market has not been kind to top growth stocks in recent months, and that means there are some very attractive businesses trading at very attractive prices. But rather than diving in headfirst, this report reviews an option trade that generates very high upfront premium income (that you get to keep no matter what) and it gives you a shot at picking up shares of one of the top growth stocks around at an even lower price. This trade covers a stock in the connected TV space, and we believe the trade is attractive to place today—and potentially over the next few trading days—as long as the market doesn’t move too dramatically before then.
FuboTV (FUBO)
The underlying company (stock) for this trade is FuboTV (FUBO). FUBO is a “sports first” streaming platform with a very high growth trajectory and a large total addressable market (i.e. lots of room to run). Specifically, it is benefiting from the the secular decline in traditional TV, the shift to connected TV advertising, and the potential growth in online sports wagering. We last completed a detailed full report on FUBO in January (and you can access that report here), but since that time—the company has greatly exceeded quarterly revenue expectations twice as the business continues to grow rapidly (a good thing) yet the shares are still down as the market has not been kind to growth stocks in recent months (as the supposed “pandemic trade” continues to indiscriminately unwind).
FUBO Share Price:
The Trade:
Sell Put Options on FUBO with a strike price of $25 (~10.4% out of the money, it currently trades at ~$27.90), and an expiration date of July 16, 2021, and for a premium of at least $1.58 (or $158 because options contracts trade in lots of 100). This comes out to approximately 6.3% of extra income just one month—which may not sound like a big return—but it is huge for such a short time frame (it’s approximately 75% of extra income on an annualized basis, calculated as ($1.58/$25) x 12 months). And this trade not only generates attractive upfront premium income for us now, but it gives us a chance at buying shares of this attractive long-term company at a dramatically lower price ($25—the strike price) if the market price falls below $25 and the shares get put to us before this option contract expires in about 1 month. And we get to keep the upfront premium income no matter what.
Important to note, your broker will require you to keep $2,500 of cash in your account ($25 strike x 100 shares) to secure the trade (assuming you don’t want to use margin).
Also important to note, you can adjust the strike price of this trade (for example to $26) depending on how badly (and at what price) you want the shares put to you, and to generate a different amount upfront income as shown in the table above).
Your Opportunity:
We believe this is an attractive trade to place today, and potentially over the next few trading days, as long as the price of FUBO doesn't move too dramatically before then and you’re able to generate enough premium income to your liking.
Our Thesis:
Our overall thesis is simply that FUBO is a very attractive businesses, and we’d love to own (more) shares (as a long-term investment) if they fell to a purchase (strike) price of $25. But if these shares do not get put to us, then we’re also happy to simply keep the very high upfront premium income that is generated by this trade.
Very briefly, from a valuation standpoint, FUBO trades at approximately 5.6 times sales, which is actually reasonable for a company with such a high revenue growth rate. As you can see in the following table, FUBO’s revenue is expected to grow at an extremely high rate this year and next year (for a little perspective, a growth rate over 20% is generally very good).
source: StockRover
For a little more color on these shares (in addition to our previous full report on FUBO linked earlier), here is a look at the the aggregate price target and rating per the 8 Wall Street analysts covering the shares.
None of the analysts currently rate the shares a sell, and they have an aggregate price target of $39.50. Not only is that price target above the current price, but it is dramatically above the strike price on our trade. FUBO is a volatile stock to begin with, and the uptick in market wide volatility only makes the shares even more volatile. Rather than trying to catch a potentially falling knife, we like the trade in this report because it puts attractive upfront income in our pocket (that we get to keep no matter what) and it gives us a shot at owning shares of FUBO at an even lower price (if the shares fall even further than they already recently have).
Important Trade Considerations:
Two important considerations when selling put options are ex-dividend dates and earnings announcements because they can both impact your trade. In FUBO’s case neither one is a concern because FUBO doesn’t pay a dividend, and because it isn’t expected to announce earnings again until August (after this trade expires). If the company announced earnings before this contract expires—that would add significantly uncertainty risk to the trade, and we’d have to take that into consideration when decided what amount of premium we’d be willing to accept. As the trade stands, the high premium income more than compensates us for the volatility risk, in our view (especially considering if the shares get put to us, we like them as a long-term investment).
Conclusion:
FUBO is an attractive business. It has a very high growth rate, a large market opportunity and the shares are reasonable priced. However, the shares are volatile, and current maketwide volatility only adds uncertainty to the near-term share price. For these reasons, we believe the trade described in this report is extremely attractive. Specifically, it puts a high amount of upfront income in your pocket right away (that you get to keep no matter what) and it also gives you a chance to pick up shares of this attractive business at a significantly lower price if they fall below the strike price and get put to you before the options contract expires.