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November 2, 2019

“Where’s the beef?”

Plant-based meat companies are all the rage in the food wars.

They are going head-to-head with the meat industry hoping to take huge chunks of market share from ecological and health conscious consumers.

And there’s a lot of excitement since fast food chains like McDonald’s, Burger King and Dunkin Donuts are jumping on the plant-based bandwagon.

Beyond Meat (NASDAQ: BYND) is the lead dog after this maker of plant-based meat substitutes generated quite a bit of hype after it went public in May.

The stock opened at $45 and skyrocketed to over $200.

However, shares have struggled since peaking in late July. And the stock was down nearly 20% in one day on the heels of the company’s earnings report.

So, Why Was The Stock Down?

The selling had little to do with Beyond Meat’s results, though. The company saw its first profitable quarter since going public, earning $0.06 per share on $92 million in revenue — $10 million more than analysts expected. Management also raised full-year sales guidance by $30 million to $270 million.

Beyond Meat’s IPO lockup ended recently, meaning insiders are no longer barred from selling most shares, and it seems many of them took the opportunity to cash out.

Gigantic Premiums and a Silly Put

With earnings out of the way and a lot of insider shares now on the market, we had the opportunity to sell a “silly put” on the stock.

This is a put with a strike price that is at least 10% below the share price and with a potential annualized return of 15% or more.

While BYND’s valuation is still high, we sold a put strike that was well out of the money. And the elevated volatility in shares means we were being compensated for the higher risk with more premium.

With the stock trading around $81.50 we sold $70 put option 20 days out and collected $1.10 or $110 per contract.

Beyond Meat’s stock stabilized and we closed out the trade for pennies…and captured 1.6% or an annualized return of 37% in just 15 days.

That’s what I call “bringing home the sausage.”

 

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