This is a FullyInformed members strategy article. Put Selling against YUM Stock has provided excellent returns so far this year. Actually the returns have been wonderful since I started Put Selling YUM Stock in 2009. The latest bird virus scare out of China is impacting the stock direction of YUM Stock and many investors who engage in Put Selling are wondering what the outlook is for YUM Stock. With 30% of YUM Brands revenue being generated in China you can understand the concern. As well YUM Brands management have warned that revenue is lower.
While many of us would own YUM Stock if assigned shares, none of us want to be in a position of being assigned at a present levels while watching the stock decline lower.
On April 18 YUM stock fell back to support at $65. To understand what may be happening with YUM Stock and determine the suitability of continuing to do more Put Selling against this stock, it is worthwhile to look at the 6 month chart.
Yum Stock 6 Month Chart
Last year the stock had a nice run-up which ended abruptly on Nov 29 2012 at which time the stock closed at $74.47. Following that the company announced that earnings would be impacted by a slow down in China and the problems with chicken which is a staple of Yum brands restaurants in China. The stock pulled back to just above long-term support at $65 and then commenced a pattern of lower highs. It broke $65 a number of times during this period and then collapsed down to an intraday low of $59.68 on Feb 5 2013. The stock staged a second rally which I have marked in blue and then collapsed again. The second rally did not break into new highs. Statistics show us that most times when an uptrend breaks and the stocks hits an intraday low, that low will be revisited at some point in the coming months. The question we need to ask then is whether YUM Stock will revisit lows below $60 with the next earnings news on April 23.
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