Put Selling Yum Stock has been incredibly profitable. Once in a while I can throw in a short-term stock trade to boost earnings and each year this stock keeps bringing in the profits. Every quarter though I get a lot of emails from investors worried about the next earnings release. They worry that earnings will be bad and they will get hammered with their naked put positions.
Protect Your YUM Stock Put Selling Positions
There are a few things investors can do to protect themselves. The first of course is turn those naked puts into put credit spreads. Personally I don’t like to do it as it costs capital to buy long puts which may expire worthless, but often than not the stock does pull back and those long puts may end up earning more than the original naked puts sold.
Normally you want to sell your puts further out in time and then buy the puts closest to the earnings news. With earnings coming up today, (Oct 08 2013 ) I would sell the Oct 19 options and buy protection on the Oct 11 options. Below are the Oct 11 put options. You can see that they are highly elevated because of the earnings coming out but still buying the $65 puts for around .14 cents for Oct 11 makes some sense.
Below are the put options for Oct 19 at the time of writing this article. If I sold the Oct 19 $67.50 puts for .58 cents and bought the Oct 11 $65 puts for .14 cents I am still earning .44 cents for two weeks of work or around .67% which is not bad at all and provides decent protection at two very good support levels in the stock.
Another more compelling trade is selling the Oct 19 $70 puts for $1.20 and buying the Oct 11 $65 puts for .14 cents. This provides a return of $1.06 or 1.5% for the same two weeks and still is at a reasonable support points.
YUM Stock Put Selling Credit Spread Strategy
Selling puts into earnings especially with the weeklies available makes profiting from an earnings much more likely. Indeed many investors will do both sides of this trade, a put credit spread and a call credit spread.
That way no matter what happens an investor hopes he will earn the very best premiums available. Should YUM Stock shoot higher he can close his short calls and earn premium on the long calls. If Yum Stock falls lower, he can close his short puts and profit from the long puts.
While never a guarantee, conservative options investors like this type of spread strategy. It may certainly be something to consider leading into YUM Stock earnings.
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