Profit taking in options

Quick portfolio update for the Irregulars

By Travis Johnson, Stock Gumshoe, February 15, 2017

Just a brief note here to let you know that I’ve sold a little over half of my Shopify (SHOP) options position.

I was pondering whether to hold on to this speculative position in the April $60 SHOP calls last month, since the one clear remaining catalyst before option expiration would be their quarterly report — and I decided to hold through that report.

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SHOP reported before the market opened this morning, and showed continued strength in both subscriptions and payments, and a somewhat Amazon-like loss as they continue to pour money into investing in possible future growth.

So the bottom-line results were worse than expected, with SHOP continuing to absorb losses… but to some degree those losses are intentional investments in the future, and while there was a little worry in the premarket and right as the market opened because it usually takes a little while for consensus to emerge about whether a quarter was “good” or “bad”, it seems that as of late in the day on Wednesday the consensus has swung to “good” as investors are appreciating the continuing top-line growth. Or perhaps one of the several pundits following the stock came out with a reassuring comment or two, though I haven’t seen anything (the Motley Fool has been all over SHOP over the past year, though there are probably others as well — people love scalable growth stories, even if they look expensive).

So this position now sits at a profit of about 300%, which means I’m taking my initial investment and a nice net profit off the table and letting the rest ride for a bit. I still like the potential future for Shopify, even though their market is very competitive and they are extremely overvalued based on their current financial metrics, and even though much of their growth might be in the lower-margin merchant processing business (handling credit card payments)… mostly that fondness comes from the fact that they seem to have pretty visionary leadership, strong insider ownership, and very happy customers who keep retention high.

But I’m not letting it ride with everything, nor am I willing to leave my profits to erode if the stock falls back for any reason over the next couple months, as it certainly might — options positions require good or fortunate timing, and we’re close enough to April expiration ...

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