Signet Jewelers got slammed today after releasing quarterly results that exceeded the consensus analyst estimates for revenue and earnings. After closing on Tuesday above $50, SIG briefly traded below $40 this morning before settling down in the $41 – 42 range.

The culprit was some of the forward guidance in the press release that accompanied the numbers, including 1.5% downward revision to same-store sales expected in the fourth quarter. However, the company increased its same-store sales guidance for 2019 and upped the bottom-end of its EPS estimate for next year.

Of course, Signet’s timing could not have been worse in terms of overall stock market sentiment this week. Investors are running scared as evidenced the 5% drop in the S&P 500 Index since Monday’s open.

Also not helping is Tiffany’s (NYSE: TIF) 15%+ drop after its third-quarter results disappointed the market two weeks ago. Yes, SIG deserved to sell off a bit too, but not by 20%. All of which begs the question, what is a fair price for Signet based on what we now know?

The technical indicators aren’t much help in this case help since SIG has broken through its lower Bollinger Band and short-term support (there is long-term support around $38 in terms of downside protection).

Although my IDEAL Stock Rating System now assigns a perfect score of 10 to SIG, that may not matter much in the near-term, either. This market is trading on emotion, so fundamental arguments for valuation are falling on deaf ears at the moment.

However, the institutional shareholders that control 94% of SIG’s float are not the type of investors to panic. I believe some of them will view yesterday’s selloff as an opportunity to acquire more shares at a bargain price. For that reason alone, I believe SIG will gradually rise above $45 over the next two months.

If that happens, then we should be able to close this position out early with a very nice ROI. The ride could be bumpy, which is why I am selecting an expiration date in April in case it takes a bit longer for the market to settle down than I expect.

Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.

How to Make the Trade:

• Trade: Sell to open the April 18, 2019, $40 put option on Signet Jewelers (NYSE: SIG).
• Symbol: SIG190418P00040000
• Limit Order Price: a credit of $4.50 or more.

Tell your broker: “I want to sell a put on Signet Jewelers stock. Specifically, I want to ‘sell to open’ one $40 Put that expires on April 18 for a credit of $4.50 per share or more.”

Note: Sell one put for every 100 shares of Signet Jewelers stock you would be pleased to buy at $40 per share. Investors should set aside $4,000 per contract sold to buy the stock in case the option expires in the money.

Further Instructions Regarding the Trade:

• • If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least equal to the Limit Order Price specified above.
  • Place your limit order on a “good ’til cancelled” (GTC) basis and be patient.