By Paul Price
The shares were down to $67.62 this morning from a 52-week high of $86.87.
This type of event typically triggers over-reactions in near-term stock market action. Remember the Wal-Mart Mexican bribery scandal and WMT’s very quick subsequent recovery?
Market Shadows sold one November 16, 2013 expiration put with a $70 strike price for $6.60 per share today in our Virtual Put Selling Portfolio.
Our maximum gain is capped at 100% of the premium received ($660). That will be realized if MJN closes at $70 or higher on the option’s expiration date.
If MJN closes below $70 next November 16th, we will be forced to purchase 100 shares for a net cost of $70.00 - $6.60 = $63.40 per share.
MJN could drop by up to $4.22 per share (-6.2%) from the already depressed inception price without causing a loss on this trade.
This article is in the latest Market Shadows Newsletter, 7-3-13, Fables and Fairy Tales.