Knowing what things are worth lets you move quickly.
Get your Motor Running with Honda
By Paul Price of Market Shadows
When world-class companies go on sale at new lows it is worth talking a good look. When the shares are down despite outstanding fundamentals it demands action.
Market Shadows Virtual Put Writing Portfolio jumped in as soon as options on Honda Motor Company (HMC) started trading today. HMC made a new 52-week low pre-market mainly due to weakness in the overall Japanese stock market environment.
We sold six contracts of the Oct. 18, 2014, $35 puts @ $3.20 per share. Our best case scenario will see us keep 100% of the $1,920 premium we received. That will occur if HMC merely rebounds to $35 or higher by Oct. 17, 2014.
The worst-case scenario, if Honda remains below $35 on expiration date, would force us to buy 600 shares of HMC at a very attractive net cost of $31.80 per share ($35 strike – $3.20 put premium).
I’d be happy either way. In fact, I bought HMC outright in two of my personal IRA accounts even before 9:30 AM as the asking price was below $33.50. I didn’t need to wait for the official opening to know that I wanted to own Honda at that level.
HMC is expected to post all-time record EPS in FY 2014 (ends Mar. 31, 2015). The company is being helped by Abenomics which is actively committed to devaluing the yen, making Japanese exports more competitive around the world.
HMC hit $42.96 late in 2013. It peaked at $41.40 earlier in 2014. Each of the most recent previous pullbacks towards today’s price reversed quickly to the upside.
Our ‘if put’ price is lower than the absolute nadir since late in 2012 when EPS were much lower than they are today.
The stock pays a reasonable 2.33% yield at $33.45 with plenty of room left for future increases. One of my two share price purchases was confirmed at below the official lowest price of the year as it came outside of normal market hours.
Steppenwolf said it best in 1969.
This post was originally posted at Market Shadows on April 8. Sign up for free alerts on Paul's Trades and our favorite articles by providing your email in the box at the top left of our website page.
