When others panic, we see opportunity.
Market Shadows established a new short put position today on home security company ADT Corporation (ADT).
ADT was spun off from Tyco International (TYC) on Sep. 28, 2012. It has traded independently on the NYSE since then. In March of 2013 investor enthusiasm was running high. ADT shares peaked at $50.37. At that pinnacle ADT’s P/E was greater than 30x trailing earnings of $1.72 per share.
Earlier today ADT announced slightly lower than expected numbers for the December 2013, fiscal Q1 of 2014. Trailing 12-month EPS, at $1.83, are now higher than they were in March of 2013 yet the stock briefly tanked by more than 20%. ADT bottomed intra-day at a new all-time low of $29.56.
When others were selling in despair we stepped in and sold 4 contracts of the January 15, 2016, expiration $28 strike price puts @ $4.10 per share. We collected $1,640 while agreeing to stand ready to buy 400 shares at a net cost, if exercised, of $23.90 ($28 strike – $4.10 put premium).
We also placed an order to sell the 2016 series, $30 puts @ $5.20 but nobody hit our offer price.
Our break-even point is dollars below where any ADT shares have ever changed hands. That $23.90 ‘if put’ price would be 13.1x present-day trailing earnings. The 20-cent quarterly dividend would make for a 3.34% current yield at our theoretical entry level.
Track all Market Shadows’ closed-out and currently active option positions by clicking here.
