By Dr. Paul Price, Market Shadows
We took advantage of a clearance sale in DSW (Designer Shoe Warehouse) shares after a weaker than expected, but decent, fiscal Q1 profit.
We sold (wrote) 6 contracts of the January 2015, $25.00 puts for $3.40 per share in our Virtual Put Selling Portfolio.
Our worst case scenario would be the forced purchase of 600 DSW shares at a net cost of $21.60 ($25 strike price – $3.40 put premium). DSW hasn't traded that low since January of 2012, when the stock was on the way to last November's peak of $47.55. The company is debt-free and pays a 2.12% dividend (at share price of $23.55).
Today's plunge to $23.45 brought increased volatility and great put premiums.
Our best-case scenario will be achieved if DSW recovers to $25 or better by January 16, 2015. In that event we'll keep 100% of the $2,040 we received for selling the puts. Track this trade and all our other options activity by reviewing our Virtual Put Writing Portfolio.
Disclosure: I am now long DSW shares and short DSW puts in my personal account.
