Put Selling YUM Stock has provided some of the largest profits in my portfolio since YUM Stock entered my portfolio in 2009. Last month YUM Stock tumbled when the company warned the earnings out of Asia and in particular China would fall 4% in the upcoming earnings season. I did two trades at that time. I did Put Selling and bought stock for a bounce back.
YUM Stock has been very resilient and has remained one of the best stocks in my portfolio for Put Selling, but investors hate uncertainty and fear just about everything. The news from YUM Stock after hours on Jan 7 2013 that sales for the 4th quarter out of China were down 6 percent, seems to have stunned a lot of investors. Full earnings will be released February 4.
After hours investors dumped YUM stock pushing it down to $64.25.
YUM Brands blamed bad publicity from the Chinese Government over the food safety review, which in the end they indicated that food was fine at YUM Brands Restaurants.
YUM Brands has about 5,100 restaurants in China. These contribute more than half of YUM Brands overall revenue and operating profits. CEO David Novak told investors at that he was “very confident” the company would turn in “very solid” sales growth in 2013 at established restaurants in China. Meanwhile YUM Brands announced it is expecting to earn $3.24 for the 2012 period.
Put Selling YUM Stock – 3 month chart
The 3 month YUM Stock chart is below. I have been Put Selling the stock and staying primarily at $62.50 for my put strike. Today’s action after hours pushed the stock down to $64.25. This marks a revisit of the lows from mid-December when YUM Stock plunged when the company warned of a possible 4 percent decline in their earnings for the upcoming quarter. So there is bound to be some support at $64.00.
Put Selling YUM Stock past 3 months
Put Selling YUM Stock – 6 month chart
The 6 month chart for YUM Stock is what I have used to judge what put strikes to select for Put Selling. I have sold the $62.50 at various times throughout the past 6 months as there is considerably support at that price point.
Put Selling strike for YUM Stock on the 6 month chart
Put Selling YUM Stock – 12 month chart
Finally, the 12 month chart shows the other two strikes I have been Put Selling against, namely the $60 and $57.50. Examining YUM Stock you can see a possible double top in the stock. This could be signaling a tough few months ahead for YUM Stock. If this does happen, volatility should be higher making Put Selling even more profitable this year than last.
Put Selling YUM Stock over the past 12 months
Put Selling YUM Stock -Put Strikes Considered
To conclude, tomorrow I will be Put Selling the $62.50 and the $60.00 strikes. If the weakness continues over the upcoming month leading up to YUM Stock earnings on Feb 4, I will consider rolling these puts lower should the stock fall below $60.00. However I do not mind hold the $62.50 puts in the money as long as the stock holds around the $60.00 valuation.
You can understand from the above charts why over the past year I have primarily stayed with these three put strikes for Put Selling YUM Stock. Presently going into January I am holding naked puts at $62.50, $60 and $57.50. I am unconcerned at this point with the YUM Stock pullback after hours on Jan 7.
With expected earnings of $3.24 and if PE should fall to 18.5 X from 20 X, the earnings still supports a stock price of $60.00, which makes my Put Selling strikes proper. At this time then, my Put Selling strategy on YUM Stock will focus on the same three put strikes, $62.50, $60 and $57.50. I expect at the open on Jan 8 2013, YUM Stock may tumble the most following the after hours plunge on Jan 7. If YUM Stock can fall enough at the open I will look for Put Selling opportunities at the $60.00 put strike first to see what kind of valuation I can capture.