Buying Below Multi-Year Support: Rarely a Bad Move
By Paul Price of Market Shadows
Market Shadows loves to sell puts after a stock has already dropped dramatically. That is when the risk is lowest and volatility and option premiums are highest.
Contract manufacturer Jabil Circuits (JBL) plunged by more than 20% yesterday after reporting a decent fiscal Q1 but guiding appreciably lower for the second quarter of the FY ending next August 31.
JBL closed Thursday at $15.69. We sold five contracts of the Jan. 2015 $15 strike price puts for $1.90 this morning for our Virtual Put Selling Portfolio. In my personal account I sold these same conservative strike price puts as well as some Jan. 2015 $17 strikes @ $3.02 per share.
The ‘If Put’ price of $13.10 on the $15 strike is lower than any JBL shares have actually changed hands since the middle of 2010.
Our maximum profit would be to keep 100% of the $950 premium received. We’ll achieve that goal if JBL merely remains above $15 on the Jan. 17, 2015 expiration date.
If the Jan. 2015 $15 puts are exercised we’ll be forced to buy 500 shares of JBL for a net cost of $13.10. That is figured as $15 (the strike price) less $1.90 (the put premium) = $13.10 per share.
See full details about all our closed-out and current option positions here.
