Market Shadows is Selling a Jan. 2014 put on Coach. Premise: The selloff is an overreaction.

By Paul Price of Market Shadows

Coach (COH) beat fiscal Q1 numbers by a penny a share.

The stock dropped about $4 per share on the opening (Oct. 22) and we sold 1 January 2015, $50 put for $6.50 per share.

(Oct. 23 Update: the Jan. 2015 $50 put can be sold for more today because COH fell another $1.50. The put was trading at $7.50 as of the market close.)

We’re committing to buying 100 shares of COH if the stock is trading below $50 at 4 PM on Friday January 16, 2015, the last trading day before the official expiration date.

Our ‘if put’ price becomes $50 (the strike price) minus $6.50 (the put premium) = $43.50 per share. We keep the premium of $6.50, which lowers our net cost for the shares.

In the latest year Coach posted all-time record sales, pays a higher dividend than ever before and showed the best EPS in its history. The break-even price on our put ($43.50) is lower than any price at which COH changed hands during the entire past three years. COH has traded much higher on numerous occasions in the past 36 months.

Our maximum profit is the $650 we collected upfront. A close at $50 or higher will deliver this best-case result.

See full accounting for all previously closed-out puts and currently held trades on the Virtual Put Writing Portfolio page.

P.S. Don’t Miss Actionable Alerts / Newly Published Articles

Please provide your e-mail in the subscription bar indicated by the Red Arrow. An active version of this screenshot appears near the top of each MarketShadows page. You’ll receive real-time alerts when we make changes to the Virtual Value Portfolio (equities) and the Virtual Put Writing Portfolios. Please confirm your subscription once it is activated (check email).