I’m Lovin’ it
By Paul Price
We added a new position to the Market Shadows’ Virtual Put Portfolio this afternoon–we SOLD one contract of the McDonald’s (MCD) January 15, 2016, $100 put for $14.50 per share.
Our ‘if exercised’ price is $85.50. That is the $100 strike price minus the $14.50 put premium we collected. We would only end up buying shares if the stock is trading below $100 at expiration. $85.50 is also called our “break even” price. That is $9.35 per share below the 3:42 PM trade inception price of $94.85.
In a worst case scenario we will be forced to buy 100 shares of MCD at a price near the company’s 30-month lows. At that level we’d be collecting a 3.79% current yield on the net purchase price, even at the current 81-cent quarterly rate. The actual dividend will likely be higher before our January 2016 expiration date.
McDonald’s is not a home-run stock from today’s quote. It does appear mildly undervalued based on historical valuation levels. The above-average dividend keeps investors interested and is typically raised each year.
Technical support is very strong. MCD has traded above our break-even price about 95% of the time since the middle of 2011.
Research firm Morningstar rates this conservative company with 4-stars out of 5. They call ‘fair value’ at $105. Standard & Poors’ evaluation of McDonald’s is similar.
Our long-term put position will work out well if MCD goes up, remains unchanged, or even if the shares decline slightly. I’m expecting that MCD will be well above our $100 strike price before the option’s expiration date.
Market Shadows’ Virtual Put Selling Portfolio booked a number of winners (short puts which expired worthless) today. Those profits are now listed as closed-out transactions.
The Put Selling Portfolio was initiated in January, 2013. We have completed twenty-one transactions (Sold to Open/Buy to Close (STO/BTC) or expired) with 19 winners against two losing trades. Our cumulative net gain is $10,931.
It is not possible to calculate ROI on shorted put options (in a margin-type account) that never got exercised. We received money upon the sale of the puts and booked profits without actually laying out any cash.
What we can measure is almost $11K in added value that is reflected on our brokerage account statement.
See details of all our completed and current option positions by clicking here.
