As investors know I am holding deep in the money naked puts on YUM Stock which I sold prior to the earnings announcement. The plunge in the stock took YUM Stock down to $67.00 for a drop of $8.00 for my naked put options. I originally made 76 cents on the sell of the put options. That means I am down $7.25 on each put option sold.
This is what those who sell put options for income worry about. When a stock collapses so quickly they are left holding huge losses that can wipe out months of profits. The speed of a decline often leaves no chance to get out of a trade quick enough to keep losses to a minimum. Using a stop-loss rarely works on quick declines and often a stop-loss will leave the investor at the mercy of the market maker who treats the stop-loss once it is reached as a market order. Fills on stop-losses on big declines can be horrendous. With my trade if I wanted to close the trade today my loss would wipe out months of gains made through selling put options in YUM Stock.
YUM Stock Plunge Is Not Unique
I have gone through this type of plunge in the past and I am sure it will happen again in the future. Because of that I prefer to keep a trade profitable and put in place a rescue strategy that can work my trade back to its original goal which was not owning shares for anything more than very short periods of time and selling naked put options against YUM Stock that were out of the money and not at risk of being assigned shares.
Two YUM Stock Rescue Strategies To Consider
There are two rescue strategies being discussed. The first rescue strategy requires more capital but should get the trade back to the original goal in a shorter time frame. The second rescue requires far less capital but may take longer to get the trade back to profitability.
Follow The YUM Stock Rescue Strategies To Conclusion
This article will be updated as trades occur. This is an excellent opportunity to follow along as a trade that is deep in the red is turned back to profitability so it cannot damage the portfolio’s return.
These rescue strategy articles are for members as they present actual trades and discuss both rescue strategies in detail to assist investors in learning how to rescue trades in their own portfolios. I rarely believe in taking losses in my trades. I believe that rescuing a trade not only works, but can keep my capital safe from unnecessary losses and often can return more profit than the original trade provided.
This rescue strategy article is 1900 words in length as I lay out the updates and trades that have been done to date to start the rescue efforts………….The rest of this rescue strategy article is for members.
YUM Stock – Rescue Strategies Trades and Updates for Oct 8 2015
FullyInformed USA Members can directly access this rescue article here or they can sign in to the USA members site here. Non-members can join FullyInformed USA here or read the benefits of being a member.