Trade Alert: No More Monkey Business (ABT)
[UPDATE: The original alert referenced a price of 50 cents, which has been revised to 75 cents based on this morning’s opening bid/ask spread]
The stock market’s relentless sell-off has been both a blessing and a curse. It has been a blessing in that many stocks now appear oversold and are attractive short put candidates. However, until the market settles down it will be a curse on the short positions already in force.
Since I believe the negative volatility will persistent through the end of this month, I will not issue a new short put trade this week or next. Instead, I am going to take a nice profit on Abbot Laboratories (NYSE: ABT) by closing out that short put while it is still comfortably out-of-the-money (which is a good thing, since we are sellers and not buyers of this option).
Also, this will free up money in your brokerage account that can be used in January for the other short put positions expiring next month, in case any of them end up getting assigned to you (or have already). I’ll talk more about that next week along with a plan of action as we head into 2019.
We opened this position on October 26 at a limit price of $1.50, and many of our members reported selling it for $2 or more. We can buy it back (as of yesterday’s closing price) for less than 75 cents, resulting in a return on invested capital of at least 100%.
NOTE: If you did not sell a short put on ABT to begin with then please ignore this trade alert! This alert is only to close out an existing short put position.
How to Make the Trade:
- Trade: Buy to close the January 19, 2019, $65 put option on Abbot Laboratories (NYSE: ABT)
- Symbol: ABT190118P00065000
- Limit Order Price: a debit of $0.75 or less
- Amount: equal to the number of short put contracts initially sold
[Editor’s Note: I know that many of you will be on travel over the next week for the holidays. For that reason, I will not initiate any new options positions for the remainder of December. However, I may close out a position if circumstances warrant so please review the subject line of any alerts issued over the remainder of the month to determine if they apply to you.]
Stock Talk
W Burton
Since we have been hammered by falling prices on puts we had,isn,t there some opportunities to take advantage of by doing the same thing? Buying puts way out of the money and then selling the stock for a nice profit?
Jim Pearce
Yes, there is but Income Millionaire is an income service and what you are describing is a growth strategy so we don’t normally recommend long puts (or long calls) as part of our portfolio. However, given the current circumstances I will include some commentary regarding recovery techniques in next week’s update.
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Annalee
ABT closed for 0.70 debit @ (15:44:49)
BTC ABT Jan018’19 0.65 PUT 0.70
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W Burton
With WDC closing at a little over $38,on 1/7/19, and the expiration date Jan 18 it appears a likely candidate to be assigned to me (strike $50), in 11 days or less. So my options are to let it happen and I buy at $50 and (lose asset value 0f $12) or BTC at a price of around $11 for a net loss of about $9..( Div of $50 + credit of $197.=$247.)
Have I analyzed correctly?
Are there other avenues open that I can consider? If assigned I own the stock, future dividends, and potential growth. If I BTC I lose for sure about $900.
\Your thoughts??
Jim Pearce
Your analysis is correct. Since I believe WDC has become grossly oversold, my thoughts are as described in this recent update: https://www.investingdaily.com/income-millionaire/articles/45260/shifting-gears-2/. The company is due to report its next set of quarterly results in a few weeks (but after this option expires), so that news will most likely determine my strategy for WDC over the next couple of months.
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Stanley
Hi Jim,
I am also looking to recoup a few dollars on WDC
Does it make sense to buy to open WDC 1/19 37.50 put premarket .93
WDC 2/15 37.50 2.10, WDC4/18 37.50 3.40
or
WDC 4/18 32.50/37.50C spread worth 1.80 premarket
We are going to own the stock down $10-12 per share in a few days. I think WDC
should be bottoming out.
Please advise
Thanks
Jim Pearce
Hi Stanley. I agree that WDC should be bottoming out if it hasn’t already. However, since Income Millionaire is an income service we do not normally recommend spreads even though what you propose makes sense from a risk management perspective. WDC is scheduled to release its next set of quarterly results in a few weeks so I am going wait until then before issuing further guidance. If all goes well, WDC will rally above $40 on that news so we may write a covered call soon to recoup our loss in it.
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Stanley
Hi Jim,
Thanks for getting back to me.
I did elect to fill WDC spread to ease loss.
I will follow your recomendation and place covered call if stock rises.
Stan
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