Courtesy of Dr. Paul Price of Market Shadows
I'm going to sell a put in infrastructure and agricultural manufacturer Valmont Industries (VMI). The company has been on a roll. EPS were $1.08 in 2003. First half 2013 earning results were $5.64; full year earnings are estimated at $11.08.
The stock peaked last March at $164.93 but has regressed to $136.62 this morning despite great fundamentals. Valmont’s typical P/E runs from 15x to 20x. That could easily support a 6-month target price of $166 or above.
We conservatively sold one VMI March 2014 $145 strike price put contract for $15.60 per share for our Virtual Put Selling Portfolio.
Our maximum gain, if VMI closes at $145 or higher on the expiration date, will be 100% of the premium received, i.e., $1,560.
If VMI closes below $145 we will be forced to buy 100 shares at a net cost of:
$145.00 – $15.60 = $129.40 per share
That ‘if put’ price would be $7.22, or 5.3%, below today’s already attractive quote.
