General market weakness has brought shares of specialty retailer PetSmart (PETM) down sharply. Selling puts will either capture some nice premium dollars or allow us to enter at a very attractive price point.
Pet lovers, including subcategories dog-people and cat-people, will make incredible sacrifices for their animals. They have been known to spend wild amounts of money to keep their pets happy. Several, the severely afflicted, have tried to leave entire estates to their pets. These pet-loving spenders support the company PetSmart (PETM).
This morning's 225 point DJIA decline took shares of PetSmart (PETM) down to $62.33 by 10 a.m. The stock peaked at $77.32 in 2013.
Market Shadows' Virtual Put Writing Portfolio SOLD one contract each of the Jan. 2015, $60 and $62.50 strike puts for $4.60 and $5.83, respectively. The $62.50 strike price put takes a slightly more bullish view in order to capture a bit more premium up front.
Break-even on the more aggressive strike price ($62.50) takes the option's 'if put' price all the way down to $56.67 - near the stock's low price since May of 2012.
Best case: we keep the premium we collected from selling the put. Worse case: we own the shares cheaper than they're trading for now.
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