One of old favorites, LifeTime Fitness (LTM) hit a new yearly high recently at $56.94 after an activist hedge fund announced a big stake and started pushing for a REIT conversion.

Today, a minor brokerage firm downgraded LTM from Outperform to Neutral. They cut their price target from $59 to $54. That seems like no big deal.

Instead LTM plunged more than 11% to as low as $44.64 intraday. It had rebounded slightly to trade at $45.76 at about 3:10 PM.

I like this company and took advantage of the low price and high volatility to sell four contracts of the November 2014, $45 puts @ $3.30 per share.

Our Virtual Put Writing Portfolio has made profits on LTM’s $45 puts twice before. Our obligation is to be ready to buy 400 LTM shares at a net cost of $41.70 per share ($45 strike price minus $3.30 put premium).

Our best case scenario will occur if LTM closes at $45 or higher on November 21, 2014. In that event we will pocket 100% of the $1,320 premium collected. The two-year chart below shows how infrequently LifeTime Fitness has been below that break-even price.

LTM is a volatile stock that often seems to go up or down dramatically, often on unimportant news. Selling puts when the stock is down is a great way to participate while still maintaining a low-risk trading profile.

Disclosure:  Long LTM shares, short LTM covered calls, short LTM puts

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We also sold 6 contracts of the Aegion (AEGN) December 2014, $22.50 puts today for $2.12 per share.

Break-even drops down to $20.38 per share with the shares at $22.15.

These are meant to replace our current position: short 6 AEGN $20 puts - which we expect will expire worthless (our best-case scenario) on June 21, 2014. We plan to simply leave these alone until expiration barring a further decline.

View our Virtual Put Writing Portfolio for details for our open and closed Put Selling trades.

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