You don’t often get the chance to buy high quality at a super-discounted price.
We see this morning’s sell-off in Coach (COH) as an overreaction worth playing.
COH shares gapped down to $48.86 on the opening and touched $48.40 soon afterwards. At 9:43 AM, With Coach quoted at $48.72, Market Shadows jumped in to sell one contract of the January 2016, $50 put for $8.70 per share.
Our ‘If Exercised’ price would be just $41.30 per share ($50 strike price – $8.70). How cheap is that? That break-even price is dollars below any actual trading price on COH in more than three years. I had to go ‘off the chart’ to insert our standard green arrow showing the ‘if put’ price.
Coach pays a 33.75-cent quarterly dividend putting the current yield @ 2.77% with the stock at $48.72. The yield would expand to 3.27% at our option sale’s break-even point.
Our maximum gain would be pocketing the $870 we took in upon the sale of the option. The risk is to be forced to buy 100 shares of Coach at $41.30 per share. That’s a worst-case scenario I would happily agree to.
To see all previously closed-out and presently held option positions click here.
