The countries favourite supermarket released its results today and — like much else at the moment — they were heavily influenced by the pandemic. In Tesco’s results, sales were up 7%. But profits were down 20%. That’s due to additional staffing costs and the return of £585 million in business rates relief.
The shares took a tumble on the news, but the chief exec thinks the future looks bright — and I think I agree.
So, am I going to buy the shares? Nope. I’ll show you how to use a ‘buy low’ contract to potentially get into Tesco at a lower price AND be paid for the privilege.
You’ll be impressed with the additional downside protection that gives us.
I pulled these numbers straight from the web today, so it is a current position, but to be clear, I’m not making any trading recommendation.
First up, let’s have a look at a chart for Tesco. As you can see, it’s taken a tumble today but there appears to be good support around the 220p level.
So, instead of diving in and buying the shares at 226.6p each and keeping our fingers crossed that there is no further drop in the share price, we could be smart and sell a May 220p ‘buy low’ contract instead.
Buy Low Contract
That would obligate us to buy 1,000 Tesco shares for 220p each if the price traded below that level by the 21st May. Remember, that is over 6.5p lower than where they are currently trading at.
And, in return for taking on that obligation, we would immediately be paid 6p per share (£60 in total) that is ours to keep whatever happens. That equates to a 26.9% annualised yield on the money we must tie up.
So, just to reiterate, we would be paid £60 right off the bat for entering into an agreement to buy Tesco shares for over 6.5p lower than the price they are currently trading at. Or, not at all.
If the shares are above that level on 21st May, our obligation is lifted, and we keep the £60 and simply look for another opportunity. And if they have fallen below that level then we get to pick up Tesco shares for 220p each.
But what about the downside protection I mentioned?
Well, the shares would have to fall all the way to 214p before we started to lose money. That’s 5.5% below the price they are currently changing hands for. And even if they do fall that far, we are definitely not finished with Tesco. Instead we’ll simply turn round and start to use ‘sell high’ contracts until our shares are sold for a profit.
Now, I don’t know about you but that strikes me as a far safer way to enter this market after Tesco’s results than simply buying the shares outright. And a lot more profitable than collecting Tesco points!
We teach this technique and a whole lot more on the FIRE Revolution training programme. You can sign up for just £149 a month for twelve months.
Interested? Click here for the details.
Third Friday Ltd are not regulated by the Financial Conduct Authority and the FIRE Revolution training programme is purely educational in nature. Under no circumstances do we provide any financial trading or investment advice. Any examples used are for educational purposes only and should never be construed as advice. We accept no responsibility for any investment losses you may incur. Please consult a financial advisor or other qualified professional if you are in any doubt as to the suitability of the strategies we teach.