Flash Alert… A Bit o’ Risk for a BIG Reward

By Jim Nelson, Editor, Bonner & Partners on February 5, 2015

What I have for you today is more speculative than anything else I’ve written about. But as you’ll see, this is also one of the more lucrative ideas I’ve come across for you.

Now, before you close this Flash Alert, hear me out…

This is only speculative in the short term… simply because of a big earnings announcement later this month. But if I’m right, and this company meets analysts’ expectations, you’re looking at a 27% annualized yield.

It doesn’t have to beat earnings, hit a homerun with a new product or any other less-probable action… it only has to do average for this to work out well for you.

And as you’ll see, if it doesn’t work out perfectly at first and shares go down on this announcement, owning shares would not be a problem with this stock.

I recommend you sell-to-open March $23 puts on Sinclair Broadcasting Group (NASDAQ:SBGI).

Like I said, this might come across as a more speculative play by its nature – and the timing of it. But this lines up well with our philosophy: find rather hated companies in hated industries that deserve more interest.

We’ve done this with Ford Motor Co (NYSE:F) and RR Donnelley & Sons (NASDAQ:RRD) recently. We’ve also had the shares of BP plc (NYSE:BP) put to us with this same kind of trade in mind.

Today, we’re going to take on the most important tool used by politicians… campaign ads.

Sinclair, you see, owns a large portfolio of local broadcast networks… CBS, NBC, etc. And that’s where the vast majority of the absurd amount of political contributions end up.

With the midterms still in recent memory, Sinclair’s fourth-quarter earnings are crucial to investor perception of this media play. Those numbers will come out in a few weeks. I would ordinarily wait and see how those look before making a recommendation. But in this case, I just don’t think we’d see the same kind of opportunity after those numbers are released.

As is the new policy for this service, I’ll have a more in-depth discussion on the underlying value of SBGI shares at a later time. Suffice it to say for today that we are presented with a great opportunity even if we end up owning shares.

The company skyrocketed the last time its price-to-earnings ratio expanded. As earnings began ticking up in 2010 and 2012 – in the midst of political ad season – its share price exploded even higher. We’re seeing the same setup – albeit a bit more delayed – today with the 2014 numbers yet to be reported.

Obviously, there’s more at play here. But even if earnings come in on the low side, SBGI’s forward P/E of $2 per share will give it a 36% discount to the market. That’s a tremendous amount of upside to consider on top of the huge income SBGI’s options are spitting out.

Its shares also have a significant backstop, which I’ll get to in my next update. For now, I’d like to share with you just how big of an Endless Income Wheel opportunity we have today…

As I write this, March $23 SBGI puts are trading at 75 cents per share, or $75 per contract. That works out to a six-week 3.3% return on your capital. Annualized, that’s a killer 27.7% income yield… more than 10 times what regular shareholders are collecting from its dividend.

Impressively, you’re able to still lock in that high of a return AND somewhat limit your downside more than usual. Notice, I’m recommending puts with a strike price a full $2 below SBGI’s current stock price.

After you discount even further by factoring in your put premium, this trade comes with an 11% cushion. That’s tremendous for this kind of yield.

This unique play could be one of our long-term holdings – if that upcoming earnings catalyst goes against us, OR it might just be one of our best get-in, get-out plays so far.

Since it inherently comes with a bit more risk, use caution. I recommend a smaller than average investment here. But with the huge upside opportunity, you’ll still want to have at least a foot in this water.

Action to take: Sell-to-open March $23 SBGI puts for no less than 65 cents per share or $65 per contract. Use a limit order. Volume is a bit low for one of my recommendations. So take your time. And remember, you’ll need to keep $2,300 in your brokerage account per contract you sell for the duration of this trade.

That’s it for today, I’ll write again with a bit more on SBGI tomorrow… as well as any other news from the rest of your portfolio.

I’d love to see how you make out getting in on this play. Shoot me a line at

Until tomorrow…


Jim Nelson

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