Put Selling Yum Stock is like a gold mine but without the labor costs and worry about the fluctuations in gold. YUM stock has provided high double-digit returns for this year and has been a stand-out performer for 5 years now. My portfolio loves Yum Stock. So where is Yum Stock now as it pulls back but seems to have perhaps caught a break at the Middle Bollinger Band. Overall YUM Stock looks reasonably good even in this decline but I like to be as safe as possible especially when the market direction looks like it might want to decline further. Let’s take a look at YUM Stock and see what put strikes are worth selling puts against to earn income but at the same time stay safely away from stock assignment.
Put Selling YUM Stock Outlook
Below is the last 3 months of action in YUM Stock. So what should we be looking at. I have marked all the key components that I am watching, in the chart below. Let’s review:
A. The stock hit the Middle Bollinger Band which is basically a 20 day moving average and bounced back up. This is today intraday. We won’t know the outcome today until the close.
B. Volume by 2:00 is very low so this tells me that the selling pressure is probably evaporating which could mean no more downside or at the least, a slower move lower. It is also probably signaling the stock will move back up. Remember though that if the stock market direction changes to down, 90% of stocks follow the market direction although at varying degrees, but still it’s important to keep this in mind.
C. The Slow Stochastic gave a sell signal on Sep 18 the day of the big jump higher. This was partly because of the overbought nature of so many stocks. However the sell signal each day has remained and grows to the downside. Again something to keep in mind.
D. MACD (Moving Average Convergence / Divergence) is extremely weak on YUM Stock. While not truly negative but more neutral, the outlook could go either way on the stock.
E. YUM stock in the last run-up failed to recapture the most recent high from mid-August. It did though manage to match the resistance level of that recent high. Therefore if YUM Stock can bounce back from the Middle Bollinger Band there may be enough strength to hold it above the $70 put level which would be ideal.
YUM Stock Put Strikes To Consider
The $70 put strike has the best chance of providing a decent return with a chance to protect it easily by a roll down if YUM Stock pulls back. I would want to roll down immediately if the $70 put strike was reached. However if the stock trends sideways the $70 put will quickly erode in premium once again making it ideal.
For those with a higher degree of comfort for more risk, $70 makes sense for Put Selling as the stock has a history of holding just below $70 in a pull back, such as the most recent pull back and then moving back above $70. This means if the stock moves to just slightly below $70 before mid- October I would buy back the $70 naked puts and roll at $70 into November and basically just keep on rolling month in and out at the $70 put strike until either the $70 strike no long makes sense for Put Selling because the stock has been unable to recapture $70 often enough or because the stock has moved back up and $70 has low values for Put Selling.
The $67.50 put strike is the safest. The premiums of course are less but that’s obvious. For those with a less comfort at risking their capital, $67.50 is ideal for Put Selling. It is easy to defend by a simple roll down to $65 which is even deeper into support zones and on a day like today the $67.50 is paying anywhere up to .63 cents. Not bad for the Oct 19 expiry and a decent outlook on the stock.
Put Selling Yum Stock Strategy
But overall the strategy I like best is Put Selling 5 naked puts at the $70 strike for $1.30 and then 10 at the $67.50 put strike for .63 all set for October 19 expiry. This means if the stock falls lower than $70 but above $67.50 which looks reasonable to assume, I can roll the Oct 19 $70 down to $67.50 and roll the $67.50 existing puts into November and stay at $67.50. (all prices are as of Sep 23 2013 intraday and being used for reference only)
If something unforeseen happened and I was assigned shares at both $70 and $67.50, my average is still way below $70 and allows me ample opportunities for a variety of rescue or repair strategies. This is the Put Selling strategy I prefer for YUM Stock and the one I will be implementing shortly.
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