By Paul Price of Market Shadows
When a stock tanks, nobody wants to admit they own it. It's embarrassing to go on record as an enthusiastic buyer. Staples (SPLS) dropped by 15.3% yesterday and every one of over 45 million shares traded had a buyer.
Market Shadows already owned shares. We have a profit, although it's lower now than it was the day before yesterday. Yesterday's bargain price and increased volatility made it too good to pass up another play.
We sold three January 2015 $15 puts for $2.75 per share for our Virtual Put Selling Portfolio. We are not obligated to stand ready to buy 300 shares at a net exercise price of $15.00 – $2.75 = $12.25
That ‘if put’ price would get us in pretty close to the absolute lows of the past half-decade. SPLS has traded between $16.90 and $25 during each of the six calendar years from 2008 – 2013. The company pays a 3.36% dividend.
Our maximum profit will be 100% of the premium collected. The worst case risk is to own 300 shares SPLS at the $12.25 break-even level.
See the full details of our closed-out and open positions in the Virtual Put Selling Portfolio here.
Disclosure: I sold SPLS Jan. 2015 $12 and $15 strike puts in my personal account yesterday.
