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Linamar a good candidate for naked put option trade

By Don Fanstone, Member, Kitchener-Waterloo User Group

On Jan. 5th, I posted a blog article on selling naked Puts in non-registered accounts as a way to earn income and/or buy stocks you would like to own at prices below current market value.

The example used was Linamar (LNR). In hindsight, I was premature on the timing of this suggestion. The stock was trading at $56.93 on Jan. 25th, and subsequently dropped to a low of $49.64. Depending on what strike and month of expiration you sold, you may have ended up being “Put-To” and ended up owning the stock, or if you had a 3 month or greater time frame, you would have profited as the stock price rose to $64.02 on March 17. Even if you were “Put-To”, you could have sold the stock for $64.02 and come out ahead.

Last Friday, May 20, 2016, LNR closed at $51.61, near the same price of Feb. 11th/2016. LNR has produced stellar earnings and is selling at less than 7 times future earnings (per VV 6.6 x EPS).

With an UPUP market, the stock being supported at a previous low, and a low P/E ratio, it’s an ideal time to consider LNR for an opportunity to sell Naked Puts.

Currently, the stock, at $51.61 has a Sell rating.

Earnings are rising steadily and the VectorVest value is $89.73.

A supporter of these blogs, Mike Simonato wisely suggests we post the EPS and Value on all of our stock graphs. Look for both lines to be rising, left to right! Thanks Mike!

May 22 LNR Support

Aggressive Investors may consider selling Naked Puts now.

Sell October 52’s for a Bid Price of $4.65

Prudent Investors may want to sell a deeper “Out of the Money” Put.

Sell October 50’s for a Bid Price of $3.65

Sell October 48’s for a Bid Price of $2.80.

Selling October Puts gives the stock time to work. (Rise in Price)

You will need to have equivalent value in your trading account to cover being PUT-TO and have an Option Account with your broker.

Trading options involves risk. One of the keys to profiting with options is to take profits when they are in hand, do not continue to hold for a better price.

Ideally, take 25 to 30% profits.

DISCLAIMER: Options trading involves risk and is not suitable for everyone. The information contained in this Blog is for education and information purposes only. Example trades should not be considered as recommendations. Options training is strongly recommended before placing any trades. VectorVest offers a basic options course online and occasional intermediate options workshops in Canada each year.

2 thoughts on “Linamar a good candidate for naked put option trade

  1. You indicated: “Ideally, take 25 to 30% profits”. Is this 25 – 30% of maximum profit or percentage of risked capital? Thank you.

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