Ashraf Eassa's  Instablog

I love event-driven trades - they're where you can make the most cash in the least amount of time. In this article, I would like to suggest a potentially very lucrative trade on Intel (INTC) ahead of the "Haswell" launch and the Q2 earnings results. In this article, I explain why this trade could win big with an excellent risk/reward ratio.

Market Psychology: Show Me The Money

When you are dealing with a momentum name, a company doesn't need to actually "show" investors the money, since it is almost assumed that trees with grow to the sky. This makes event-driven trades much harder to actually win at because everybody is expecting the same positive outcome. It's when you run into stocks of companies that nobody believes (even with ample evidence) that a very good risk/reward play can be constructed.

Right now, Intel is on the cusp of a slew of upside drivers that the general press/media and even the analyst community seems to be missing. They are the following:

• The "Haswell" launch in June, which should help to significantly reignite interest in PCs as battery life and performance get a massive boost
• The army of new 22nm server products coming in 2H 2013, including the new micro-server oriented "Avoton" processor (Atom based); "Rangeley" for routers, switches, and comms; single socket "Haswell" parts, 2 socket/4 socket "Ivy Bridge EP" for workstations, cloud infrastructure, networking and more; 4-8 socket "Ivy Bridge EX" for the big iron (this segment hasn't had a refresh since 2011 from Intel).
• "Bay Trail" which is an SoC for very low power tablets based on the "Silvermont" processor core, Intel's own graphics IP, and more. From the recent micro-architecture disclosure, this chip could be an absolute beast from a performance and performance/watt perspective, really igniting the sales of low cost Windows 8 tablets and convertibles.

Further, I expect a major disclosure regarding Intel's 14nm process technology. While it is known to be a 2nd generation of Intel's "tri-gate" transistor technology (and 4th generation HKMG), I expect a few more "tricks" and surprises in this announcement that will once again catch the foundries off-guard and force them to make up new roadmaps claiming that they will have whatever Intel discloses within 6 months.

All of this adds up to a full year revenue/profit level that is well beyond the analyst consensus (which is itself much lower than Intel's own guidance), which means major upside surprise for the year. So, how do we play it?

The Trade

An interesting way to play this would be to buy out-of-the-money calls that expire just after the Q2 report. If I'm correct, then Q3 guidance should easily blow away the $13.76B consensus estimate (a mere 2.3% increase Y/Y from 2012's miserable Q3). Further, I would want to finance these calls entirely from money from selling puts, as I believe that we can get sufficient premium from a low enough strike on the puts that, in the very worst case, we get the stock cheaper than it is today. So, here's the trade:

• Sell ONE August 17th $23 Put for $0.61
• Buy TWO August 17th $26 Calls for $0.27
• Net credit: $0.07.

Risk/Reward Analysis

In the worst case (stock goes UNDER $22.93), you end up owning 100 shares of Intel for each contract sold at a cost basis $22.93, which is much cheaper than today's price. This occurs if Intel closes below $22.93 by August 17th.

In the best case, your position begins to be significantly profitable each step above $26.27, requiring a 9.3% increase in the share price or better to break even. Given the that Intel has plenty of upside catalysts ahead of it, and given that it has lagged the major indices over the last 52-weeks, Intel should easily at least come in line with its own guidance (which is more optimistic than the Street's), which would lead to some really nice estimate bumps for FY2013E and FY2014E estimates - and therefore a dramatic share price movement upward.

The nice thing about this trade is that if Intel closes above $23 but below $26, you actually still pocket the $0.07 net credit (minus commissions), which isn't bad. The opportunity cost of course is having to have enough margin/cash to be able to buy Intel shares should the worst happen, but on the upside, if things go very right in this trade, the upside is all funded by sales of the puts rather than any cash you laid out on the line yourself.

Disclosure: I am long INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Trading options carries an inherently greater amount of risk than trading equities. As always, this article is for informational purposes only and only you are responsible for the outcomes of the trades you make. Please consult your financial adviser before making any trades so that you fully understand the risk/reward profile of your actions. I make no guarantees as to the outcome of this or any other trade that I point out, as I do not have a crystal ball. If I did, I'd own my own Island. So please, do your own due diligence and only take on an acceptable amount of risk!

One of the best parts about writing articles for Seeking Alpha is that there are always a number of posters that materially add to the discussion. However, in some cases, there are some commenters that go well above and beyond what the original article(s) have presented with deep arguments, shocking evidence, or a mixture of the two. I would like to shine the spotlight on a reader of mine, Sparkt_99, who just found some rather shocking evidence that shows that Medical Marijuana Inc. (MJNA.PK), despite the protestations from its shareholder base that it is worth $1/share+ (implying ~$1B market capitalization), that it is not only not going to be worth $1B in the future, but is really just a small-time operation.

This Is Your $137M Company...

At $0.17/share, Medical Marijuana Inc. may seem "cheap", but it is actually incredibly expensive. Not only does it accept "payments" in Monopoly money, but it also makes bold claims that it has the potential to "triple" revenues, all at a ridiculously high profit level. Well, I suppose if you book worthless shares of CannaVEST (CANV) as "cash flow", then these claims may be possible (anything's possible on the Pink Sheets, it seems), but in the real world of GAAP, this nonsense doesn't fly.

But the people buying up the story and the stock don't really care - or perhaps even know - about accounting, actual profitability, cash flow, etc. They just want to "invest in legalization", so what better ticker to pick than one that is so conveniently named, "MJNA"? However, if the interesting balance sheet, CannaVEST payments, auditing from a company that has never audited a public company, and management that is busy making empty threats to waste shareholder cash in a lawsuit against "Seeking Alpha authors" doesn't scare you off, then perhaps this will. This is the real "evidence" that even the least knowledgeable penny stock investor can appreciate. Ready?

This is Medical Marijuana's "HQ", located at 2665 Ariane Drive in San Diego, CA:

Can't Afford A Sign...Or A Full Building?

This is Medical Marijuana Inc. folks. A $137M business that doesn't even bother to get a sign with its company name made for them. Hardly any cars, no way to "identify" the business (which the bulls loudly protest has "real products" and is "building a brand"). In fact, according to user Sparkt_99, who took this picture and actually had the following to say:

As I drove around the complex it seemed to me to be like a place where I could easily find a wood worker making cabinets or picture frames.
I also noticed a few of the doors that actually were not afraid to announce who they were, a few names with Bio, Gen, and Tech, in their names.
There were several spaces in this complex, I'm guessing maybe 100 total. About 25% of the complex is 2 story.
MJNA headquarters in space 207 on the 2nd floor.

Does this mean that this $137M company doesn't even have a full building to itself? That it's just an office space?

Well, MJNA isn't really a $137M company, since its "revenues" are mostly in questionable CannaVEST stock, so I can understand why they'd need to operate lean since creditors don't take monopoly money. But that's the thing - do you want to own shares of a company...that is part ownership of the company's profits...that can't sell enough of its products to afford anything more than this?

How, pray-tell, does the shareholder base believe that this company will be able to afford the frivolous lawsuits that it claims to be planning against "Seeking Alpha authors"? Lawyers don't accept CannaVEST stock, either.

Conclusion

This story just keeps getting worse and worse. I know Alan Brochstein has done a fine job pointing out the accounting problems in the financials, but sometimes a simple picture speaks louder than all of the words in the world. Medical Marijuana Inc. is a $137M company that has an office building fit for a $1.37M business - which, not-coincidentally, is what it was worth before the "hype" began.

Be careful. I would sell this stock on any and all pops.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Excuse me for being a little bold, but I believe that Medical Marijuana Inc (MJNA.PK) went too far in its latest press release. In this article, I have no plans to discuss the legitimacy of the business, but I do want to point out that the company's latest release serves to highlight why investors should be skeptical of this company. Forget the lack of audited financials, put aside the fact that their "big" revenues may be paid in questionable CannaVEST stock currency, and even forget the fact that the company trades on the pink sheets and is subject to the whims of the retail traders. Medical Marijuana's recent threats to sue Seeking Alpha contributors seem completely and utterly misplaced, and this "threat" is enough to start asking some serious questions.

Why Does It Damage Credibility?

I realize that the article posted by Infitialis was powerful, and perhaps slightly over the top, but it at the very least got investors to dig more deeply into this name. Our own Alan Brochstein a well respected CFA who by himself is likely more well known than MJNA, did some detective work that even puts the Infitialis collective to shame on this particular name. If it were not for that original article, Alan - and many others - would never have even bothered to learn more.

And that's the problem. Medical Marijuana Inc's stock price was happily being bid up by retail investors after it reported a "huge" revenue increase. See, until Infitialis and Alan came around, nobody seemed to even question these financials, taking them for granted. As a result, this unknown penny stock, which had up until then traded for $0.02/share, suddenly became a $300M behemoth. Yowzers! Of course, the cat is now "out of the bag" so to speak, and the stock is now trading at less than half of its hysteria-peaks, but even so, it is still a $155M company!

Anyway, so back to the topic at hand. I believe MJNA is trying to scare anybody from writing negatively about the company. Unfortunately for the company, it needs to get used to the fact that if you're trading on public markets and continuing to dilute your share count (meaning you are selling more shares to the public), you need to be accountable. That means people will always be trying to sniff out deception and fraud because people don't like to be ripped off. And if somebody notices something funny, then it is within their rights to point it out.

Alan's detective work points out that the majority of the Q4 sales may have been, erm, in the form of CannnaVEST stock which, for all we know, could be as valuable per share as monopoly money given how infrequently it trades. So instead of MJNA coming out and refuting this and perhaps proving that CannaVEST isn't just a shell company, and that the stock is indeed worth more than monopoly money, it threatens to sue all while going on about how "comfortable" it is with this all stock deal.

So, I would now like to formally respond to MJNA's threats of "Seeking Alpha Writers Litigation", statement by statement.

Dear Medical Marijuana...

MJNA opens with,

I am aware that there are those who feel that litigation should have been commenced by now against Seeking Alpha blog writers that have published numerous negative articles attacking the Company and its management.

That's right, so because a bunch of investment newbies trading penny stocks believe that the big-bad SA authors should be "sued", it's time to waste shareholder money on a lawsuit. Am I reading this correctly?

Next up,

I have personally met with litigation counsel to go over the defamatory statements that were presented by Seeking Alpha writers in several of the article(s).

Great. Could you tell us how much this meeting cost the shareholders? Could you express it as a % of cash flow (CannaVEST stock is not cash)?

The article(s) were a blatant attempts, albeit briefly successful, to manipulate our stock price, to damage our shareholders and to create fear and doubt about our credibility.

What interest would I have to manipulate your stock price? I've never been short your stock, I didn't want to "buy it cheaper" (as I have never been long, nor will I ever be long), and while I do get a few bucks from page views, I could certainly do better on that front by writing about a larger name. Oh, and the death threats from the masses are really nice, too.

Did it ever occur to you that my articles were an attempt to keep INNOCENT investors from getting burned? If you're an experienced trader with high risk tolerance, then you can handle the daily gyrations and extreme risk that comes with trading penny stocks. But if you're just a typical investor then you have NO BUSINESS risking your money on something that has so many red flags. Sorry, Ms. Sides, but until you are filing audited financials, your business is too risky for all but the most experienced penny stock traders.

The actions from this group of individuals commenced by the parties posting numerous positive articles about MJNA all while knowing these same individuals would then collectively post those defamatory article(s) right before our quarter financial posting to significantly drop the stock value for nothing more than their personal gain.

Complete nonsense! I have never written positively on MJNA, nor have I ever profited from a move in either direction off of your firm's equity, as per my repeated disclosures.

Conclusion

If MJNA is to be taken seriously as a company, then it needs to work on refuting negative claims with facts, not threats. MJNA now comes off as though it is bullying individuals such as myself who publish our opinions in the good-natured hope that people who don't know what they're doing don't get burned. I'm not short MJNA, I've never been short MJNA, and I am not personally or professionally involved with anybody who stands to profit from the share price decline. And, as per my disclosure, nobody is paying me to write about the company.

I'm just a guy who doesn't like BS, and threatening to sue a guy on the internet for publishing his opinions is as BS as it comes. Prove yourself legitimately, MJNA. Bullying people only makes you look worse.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have never been short MJNA, and I never will be either long or short the stock, or any of its derivatives should they ever trade on public or private markets.