07/03/2013

Formula for Put Writing Success

Formula for Put Writing Success

By Paul Price

Featured in Market Shadows Newsletter, 7-3-13: Fables and Fairy Tales. 

MJN - logoInfant formula manufacturer Mead Johnson Nutrition (MJN) has taken a big hit due to the announcement that China is investigating the company regarding possible price fixing in that country.

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.

MJN put price 

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.

Click on this link to see the entire Virtual Put Selling Portfolio …

This article is in the latest Market Shadows Newsletter, 7-3-13, Fables and Fairy Tales. 

Jul 3, 2013 12:00:00 AM | Newsletter Articles, Options, Value Investing

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I'm editor at Phil's Stock World, and editor for Stock World Weekly. My background is in the biological sciences, and law. After a brief career in the legal field, I changed directions and am now working as an editor, and very much enjoying my experiences in the editing world.

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