Market Shadows sold another put position on ConAgra
By Paul Price of Market Shadows
We caught ConAgra (CAG) very close to its low the first time we sold puts on it. It was February 11 and the whole market was depressed. CAG was trading for just $28.92 that day.
We sold 4 contracts of the Jan. 2016, $30 strike price puts at the excellent price of $4.60 per share. The stock has crept higher, trading at $30.49 just after 10 AM today. That brought our older puts to out-of-the-money status.
We decided to add 4 more CAG contracts for that same expiration date, but at the higher $35 strike price. Our Virtual Put Writing Portfolio received $6.40 per share in premium. Today's commitment is to be ready to buy 400 additional shares of CAG at a net price of $28.60 ($35 strike – $6.40 put premium).
That net break-even price is lower than where the shares were when we initiated our first option sale on CAG. It is quite close to the absolute nadir since the start of 2013.
EPS are expected to hit $2.40 before our expiration date rolls around, putting our potential purchase price at just 11.9x that FY 2015 estimate versus ConAgra's 10-year median multiple of 16x. This relatively high-yielding stock rarely has traded any cheaper than that.
Our best-case scenario would be to keep 100% of the $2,560 premium we received. That will play out if CAG rises by at least 14.8%, to $35 or better, before Jan. 15, 2016. If ConAgra remains below $35 we'll happily purchase 400 CAG shares @ $28.60 or roll out the options.
See all Market Shadows' closed-out and current option positions by clicking on the link: Virtual Put Writing Portfolio.
