Quite a few high value stocks fell a over 3% today, which is what I normally hunt for as the sizeable fall means higher volatility and potentially great opportunity for selling naked put. Often movements over 3% for companies valued over $10bn are the result of overreaction to something so a bounce back can be expected within a couple of days. However, as always, there is no black and white rule book and no guarantees so each scenario has to be assessed carefully.
One of the questions I always ask myself when selling put option: would I buy the stock at the strike price. If the answer is yes then it gives me high confidence, but if it's no then I need to reassess the opportunity.
So what's my pick for today?
#KMX ( #CarMax ). The P/E is currently sitting at 14x earnings, which is attractive but it's based on the previous earnings report from 3 months ago. The next earnings is in 12 days so there is a bit of time left for a bounce back or make a decision whether to exit the position before earnings or take the risk. The price itself has seen huge movements since the covid lockdown and it's down over 30% from it's all time high.
KMX Monthly Chart
I selected the May $75 put, which is significantly below the pre-covid price level. The volatility is also very high due to the recent large price fluctuations as well as the upcoming earnings.