Current Positions: Almost Family and Pulte Homes

Let’s kick things off by going through my current positions. Last Friday was expiration for January options. I had already closed out of all my previous positions, so I started to look towards February options for new opportunities. Both Almost Family (AFAM) and Pulte Homes (PHM) have been on my watch list since November. AFAM because it was touching new highs and had building pessimism, which is a good contrarian mix. PHM was put on my list due to an article on Shaeffer’s Investment Research (SIR) about a play on Pulte Home’s long-term support.

On expiration Friday, both of these securities looked to be setup decently for some put selling of February options. I haven’t gotten a chance to delve into this much yet, but I’ve been enjoying selling put options on stocks that seem to be doing at least marginally well right now. From both my trading experience as well as day-job type activites, I’ve picked up that time is something that is easy to sell and can make you money.

So, I sold 5 contracts of each, with $30-strike AFAM at $0.85 per share and $10-strike PHM at $1.00 per share. This netted me $408.25 and $483.25 after E*Trade took out its commissions.

AFAM and PHM Put Option sales

That put nearly another $900 cash into my account, bringing it up to $5,196.44, from a totla of $3500 in deposits. A little over $3000 of that is locked up in margin reserve for the two trades. I’ll plan on leaving the remaining $2000 available for any trade corrections along the way.

Since I’m still playing catch-up here, I won’t dive into all of the pre-transaction stuff I looked at on this one. However, I’ll do a little review.

AFAM looked nice due to the $30 strike being quite a ways away from the current price, and the reasonable value of the puts. Additionally, since it broke above $30 back in mid-July of last year, it’s only test that mark once, and that was in October when every stock was testing it’s support. Right now, the stock will have to fall over 20% in the next month before there is any concern over the outcome.

PHM also showed good prospects on Friday. It has been in a range of $10-12.50 the past couple months, and was predictably bouncing off the $10 mark when I entered the trade.

Despite the down market the past couple days, I believe I played things the right thing on Friday, and still feel good about where things are at. In theory, I should say something like my stops on these are if the options double on me before expiration. With AFAM, I believe I can be a lot looser with that since the underlying stock will have to drop rather significantly before I really need to worry about being called on the puts. PHM I will have to monitor a bit more closely, since the stock is already hovering at the strike price.

At this point, what’s done is done and now I have to live with the consequences of my trade, good or bad. Today, the market started off nicely, but quickly dipped, so I hope my predictions still hold true. PHM is certainly the riskier play being in the real estate market, and a lot less room for error. However, I felt it acceptable risk considering the low price of the stock, which could present some interesting opportunities should I actually have the options called on me.

Now we get to sit back and watch. Please feel free to comment and let me know how stupid or brilliant I was. Cheers!

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