The Limited Downside Letter December 14, 2014 KO. Welcome to the Leveraged Investing Club Limited Downside Letter for December 14, 2014.

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Madison Turner
5 years ago
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1 Welcome to the Leveraged Investing Club Limited Downside Letter for December 14, This will be a fairly brief Limited Downside Letter. First, the trade idea itself is pretty straightforward, and second, most of my energy this weekend went to putting together a new 21 minute video on trade repair ( Trade Repair and Your Five Lines of Defense ) and adding it to Module 6 (Bonus/Advanced) of the Sleep at Night High Yield Option Income Course. Coca-Cola Our good friend Coca-Cola has pulled back nicely and, in my opinion, is nearing attractive put writing territory once again. You may recall about three weeks ago that I wrote an out of the money covered call on the Warren Buffett Zero Cost Basis Portfolio s 100 shares of when the stock was trading near what I interpreted as a likely resistance level. It also appeared to be technically overbought based on the above 70 RSI readings. This is the chart I shared with you at the time: Great Option Trading Strategies All Rights Reserved Page 1

Fast forward to last Friday (December 12, 2014) and is now back at that rising support

Actually, with last Friday s sell off, violated that support line as well as the 200 day moving average (red squiggly line), although, in my mind, not decisively.

3 Actually, with last Friday s sell off, violated that support line as well as the 200 day moving average (red squiggly line), although, in my mind, not decisively. We ll have to see if the sell off continues this week, or if last week set up things nicely for our alleged Santa Claus rally. While the stock could continue trading lower in the near term, on a valuation basis, I find to be attractive here. Over the last year or so, my official position was that at or below $40 represented an attractive long term entry point as a straight investment and, as a result, on a fundamental basis, an attractive put writing opportunity. Great Option Trading Strategies All Rights Reserved Page 3

4 As the company s earnings per share continue to grind higher over time, I m now increasing my personal attractive target price to $41/share. CALENDAR Dividends has this weird dividend schedule where they actually pay dividends twice each year in the calendar 4 th Quarter (October and December), and then not again until April. The company is basically advancing 4 th quarter dividends by 2-3 weeks. I ve always assumed it was intended to be a Christmas Bonus and that the polar bear had something to do with it, but your guess is as good as mine. Regardless, the stock went ex-dividend back on November 26 th and won t go ex-dividend again until mid to late March. Bottom Line dividends won t be a factor in the pricing unless you sell puts 3+ months out. Earnings I wasn t able to confirm the next quarterly earnings date, but OptionsHouse estimates it as February 6 th. STRIKES AND EXPIRATIONS trades both weekly options as well as monthlies. Re: the monthlies - January, February, May, and January 2016 are currently available, although beginning next week (after the December monthly has expired), the March expiry becomes available. Great Option Trading Strategies All Rights Reserved Page 4

5 I m personally looking at the $41 February puts they re about 10 weeks away but due to the recent sell off (both s and the overall market s) as well as that anticipated early February earnings date and the fact that the $41 strike is slightly in the money (based on last Friday s closing price), it looks like it might be possible to lock in 15%+ annualized terms over that long of a holding period. As always, there are other choices incorporating nearer dated expiries and at lower strikes like the $40 and $40.50 (note: only the weeklies trade in $0.50 increments). You can run the numbers yourself and see what combos work best for you. And there s always the old stand-by of waiting and watching to see if the stock continues trading lower and swooping in with a position at an even lower strike price. (Again, beginning next week the week of December 22nd the March 2015 monthly cycle becomes available, giving you additional scenarios to consider.) Reminder - I'm not a licensed financial advisor and I'm not officially advising or recommending any specific trade - I'm simply sharing with you with as much transparency, honesty, and detail as I can what goes into my own trade selection and thought process. Only you can decide whether any specific trade I discuss is right for you. Great Option Trading Strategies All Rights Reserved Page 5

CURRENT MARKET DIRECTION: UPTREND under Pressure

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