On Tuesday morning we wrote that the selloff in Dillard’s (DDS – Get Report) stock that followed the company’s disappointing earnings report was an overreaction and that traders could sell a put option to profit from the stock’s coming move higher.
Now, with only a slight move reversing the selloff, the recommended stock options trade has turned profitable. Take a look at the updated chart of the stock.
The original trade called for selling the December 70 put option, which was bid at 1.80, for a net premium of $171 after trading costs. By late Wednesday morning, the stock price had advanced slightly and the Dec. 70 put was at an ask of 1.30, so the option can be bought to close for $139 after trading costs.
This is a net profit of $32, or 18.7%, after little more than one day. It shows how profitable it can be to spot exaggerated stock price moves in the wake of earnings reports and then use the right options strategies.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
Besides blogging at TheStreet.com, Michael Thomsett also blogs at the CBOE Options Hub and several other sites. He is author of 11 options books and has been trading options for 35 years. Thomsett Publishing Website