For all of 2021, I was on the record as saying inflation would be far more than transitory, and now even the Fed has finally accepted it.
We've just seen one of the largest dips the stock market has had in a long time. The S&P 500 is about 8% down from where it started at the beginning of the year, and volatility is still shaking out as we remain in correction territory. "Stock market crash 2022" is getting huge traction as a search term. It seems like all the major media outlets are predicting disaster.
Those who have been following me for a while know I've been telling people not to panic, and that if you know what to look for, there's money to be made regardless of what state the overall market is in.
One of the keys to this is, you've got to be nimble - no need to weigh yourself down with a stock that could tank. This makes trading call and put options an attractive alternative to holding shares. Options let you "ride the waves" of volatility as they rise and fall and are available at a fraction of the cost of a stock's normal share price. And you're only in them for a short time - a handful of months at most - so you can mitigate your risks much more flexibly.
Right now, I think there are two options moves everyone should be looking at right now. One of them is an oil industry firm serving a market need that no one's paying attention to, and another is an entertainment giant that's falling from its former heights.
Here are the tickers, and here's exactly how I think you should play them...
Can't Live Without That "Texas Tea"
No one in the world is safe from rising oil prices.
Recent estimates expect investment in gas and petroleum to grow to $628 billion globally by the end of 2022. Investors are scrambling every which way before costs really take off - but many are missing a key opportunity one step removed from the oil drillers they love so much.
I'm talking about oil services. Companies that make all the products that drillers need to stay afloat. Companies like Schlumberger Ltd. (NYSE: SLB), a Texas-based oil company.
Unlike exploration companies that drill for oil and sell it into the global market, SLB merely provides the equipment for the drilling operations, which means its performance is less tied to short-term energy prices and more tied to longer-term energy demand.
On Friday, SLB released its fourth-quarter results, and they crushed analyst expectations.
Earnings jumped 86% to $0.41 per share, with revenue up 13% to $6.22 billion - furthermore, international revenue rose 5% quarter over quarter to $4.9 billion. North American revenue rose 13% on the quarter to $1.28 billion, outpacing rig count growth.
"[...] the industry macro fundamentals are very favorable, due to the combination of projected steady demand recovery, an increasingly tight supply market, and supportive oil prices," said CEO Olivier Le Peuch in the earnings release. "We believe this will result in a material step up in industry capital spending with simultaneous double-digit growth in international and North American markets."
To his point, output out of the prolific Permian basin, which can be found in West Texas and New Mexico, soared to a record 4.92 million barrels per day in December. And total U.S. rig counts are up by 228, bringing the total to 601.
At this point, I like buying the SLB May 20, 2022 $37.50/$40 call spread for $1 or less. Plan on selling the SLB May 20, 2022 $37.50/$40 call spread for a 100% profit, or if shares of SLB close below $33.
The King of Streaming, Dethroned
I'm also watching Netflix Inc. (NASDAQ: NFLX). The company reported fourth quarter results that included revenue of $7.71 billion, which aligned with analyst expectations and represented year-over-year growth of 16%. On the bottom line, earnings for the quarter came in at $1.33 per share, up 11.8% from the same period a year ago.
For the quarter, global paid streaming memberships rose 8.9% year over year to 221.8 million. That represents an 8.9% increase over the same period a year ago, but keep in mind, it's the second slowest pace of growth in at least 14 quarters.
Even though its quarterly financials looked good, the lag in new subscribers is a problem. For years, NFLX had a considerable first-mover advantage. But now, the streaming space is increasingly competitive, including rivals like Apple TV+, Disney+, Amazon Prime Video, and HBO Max.
NFLX opened Friday's session down more than 21% on the Q4 results. That's a big drop, considering the company is the dominant player in the streaming space, so I wouldn't be surprised if we see some bargain hunting early in this week's trading. Longer-term, though, I think the combination of slowing subscriber growth, increasing competition, and a rising rate environment is going to drive shares lower again, at least over the next six months.
If shares of NFLX trade back up to $500 by Feb. 18, 2022, let's buy the NFLX May 20, 2022 $485/$480 put spread for $2 or less. Plan on selling the NFLX May 20, 2022 $485/$480 put spread for a 100% profit, or if shares of NFLX close above $550.
There is some good news in the world of traditional stocks. A lot of underperformers definitely need to go, but there are a lot of opportunities to buy as well. In fact, there's a certain group of small, cheap stocks that has produced 12-month peak gains as high as 22,000%. Recently, my lifetime subscribers got the chance to close out a 300% winner in just two months on a position in one of these.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.