Sold 11 puts on $17.5 ZUMZ for Dec. Credit $0.40 Annualized % return........... 16% otm safety cushion... 20% ZUMZ is a financially healthy company with reasonable but mixed fundamentals. Stock is dropping due to lowered earnings guidance, coming out in late Nov. Given that this is a quality company, I've decided to take advantage of this weeks drop, by selling a $17.50 put with the stock trading just under $22. Technically, there is good support in the $20 area, and if that breaks, again in the $15 area..... per the 5 year chart below. http://finance.yahoo.com/q/bc?s=ZUMZ&t=5y&l=on&z=l&q=b&c= Thus, my strike is between the 2 support areas. Given my BE price of $17.10, and a reasonable otm safety cushion, I feel comfortable in that zone, between the 2 support areas.
ZUMZ Gapped down this AM After it lowered it's earnings guidance yesterday after the close. When a stock gaps down (especially a small cap with a high beta) it is a bad idea to jump in and trade it without waiting to see just how far down it will go. http://stockcharts.com/h-sc/ui?s=zumz http://finance.yahoo.com/q/bc?s=ZUMZ&t=5d&l=on&z=l&q=b&c= Option prices especially will be labile when the stock opens. This AM the 17.50 put was yielding .40 while at 3.30 the same put is yielding .55 That extra 15 cents is just enough to buy a protective put at 15 to produce a bull put spread. Short Put = Dec Short 17.50 put This AM Bull Put Spread = Dec 17.50/15 BPS at 3.30 PM (sell the 17.50 buy the 15) ................................Short Put..............Bull Put spread Required. MRGN...........1710........................210 ........................................P/L Table................................................. Price........................Short Put..............Bull Put Spread 10............................(710).......................(210) 12............................(510).......................(210) 14............................(310).......................(210) 16............................(110).......................(106) 18.............................40............................40 20.............................40............................40 22.............................40............................40 The short put yields 40/1710 = 2.3% while the spread yields 40/210 = 19% Looking at the chart and without further evidence 10 is not an impossibility. I leave the calulation of Expectation to the reader.
The $17.50 ZUMZ trade was initiated after the stock had already bounced off $21.50 and traded between $21.50 - $21.90. I like the value of this financially healthy company at my strike, my $0.40 credit, my 16% annualized return, my 20% otm safety cushion and my BE price of $17.10. In the fantasy world of hindsite trading, I could have gotten another $0.15 had I waited another few hours. But I can also tell you, that I have missed many excellent trades in the past, because i waited a little too long to lock in the credit,... hoping for just a little more. Had this been a Monday, I might have waited. But tomorrow is Friday, which will be followed by 2 more days of time decay,... on top of an expected drop in IV. Thus, I am satisfied with the timing of the decision I made. Last week this was a $27 stock. My BE price is 10 points lower than that and I'm earning an excellent % return. Not worth the risk of missing the trade and credit, by waiting even longer than I already did,... as I had already waited until the stock bounced off $21.50, before I initiated the trade.
Sold 17 puts on $15 QSII for Dec. Credit $0.25 Annualized % return.............. 12 - 13% otm safety cushion 15 - 16% Reasonable tech support in the $14 - 15 area, per the 5 year chart below: http://finance.yahoo.com/q/bc?s=QSII&t=5y&l=on&z=l&q=b&c= Company is financially healthy and stable, but with mixed fundamentals. Given my BE price of $14.75, stock is reasonably valued. If I did the same trade on Monday vs today, the % return would be 13%. If stock is put to me, it pays a 4% dividend.
QSII has a Zack's Strong Sell rating http://finance.yahoo.com/news/zacks-analyst-blog-highlights-quality-120802333.html
A few days ago ZACKS had a number 3 ratings. Your number 5 sell analysis is an old one from Sept 5th. Also, keep in mind their price analysis is based on a price of $17.75 - $18 vs my BE price of $14.75..... which is more than 3 points (18%) lower than their price assumptions. Besides potentially owning the stock at a much lower price than they assume, their analysis is also based on holding the company for a much longer period than just 6 weeks..... and with no otm safety cushion or L-T tech support. As I pointed out in my QSII post, the companies fundamentals are "mixed", but it is a financially healthy company, and reasonably valued at my price. Bottom line,.... my analysis is based on my strike price, my otm cushion, my 6 week contract length, a 13% annualized return (even without their excellent dividend), and tech support in the $14 - $15 area. Their analysis is based on a higher price, a longer holding period, and no tech support. Hence the reason I do my own analysis.
You are correct... currently they have a Zacks rating of 3 = hold although I find little reason to raise the rating in the Zacks write-up: http://finance.yahoo.com/news/quality-misses-est-profit-wanes-140917882.html Either way it's a company on the edge of destruction... or acquisition. It really is in no position to compete with the likes of McKesson and Cerner.
I agree that it's not bickering. I'm not sure about polite either, though, as it seems Dan Shirley has no problems calling Put Master a narcosis-tic nut job, because PM is trying adamantly to prove a point. It's actually quite educational, the parts that I understand, and entertaining too. DS vs PM both seem to be a couple of heavy weights, which always makes for a good fight. PM seems to be more in control so I'd say he's delivered the most blows, but DS has shown himself to be a big enough person to admit being wrong, yet still making it sound like he was still right. No one is being run off by the squabble. I'm going to smoke a doobey(for my back) and keep reading. Go Obama!
Put Master is right. We could totally be watched my thousands like reality television. HI MOM!! I suggest we stop this argument and call it a draw. I'm tired of it and I am sure the forum is also. If you feel the need for the last word take it... but then lets drop it. Here's MY last word: Spreads are better. [/QUOTE] Sounds like DS is yelling for his corner to throw the towel in.
Please correct a noob, but couldn't this the case with any options trader, and not just spread traders? I think I get the point, though, that it's always better to at least have the option to take ownership of a stock, even if it's shit, and hope for a recovery. Is the point you are making here, that most spread traders are completely ignorant to the fact that they are using leverage, and just don't realize that their options are nil for recovery if the trade doesn't go their way? I think I get that, and I'm a dumbass