Ralph Lauren (RL) Naked Put Options

Kopin Tan wrote about Ralph Lauren (RL) on page M7 in Barron’s October 29th issue.  This is one of the few articles they also have availble for free online too.  As of his writing, RL was down to 68, well off its highs.  Even before this week’s further drop in price Kopin sited the p/e ratio as an opportunity to get in while it’s cheap.  The typical p/e range for RL is 18-25.  It’s current trailing p/e is 17.47 with a future p/e of 14.01.  It looks like a lot of people are expecting RL to miss earnings.  If that’s already baked in, the fall shouldn’t be too much further when they announce earnings next week.

RL has continued to drop this week creating a better opportunity to sell OTM naked puts.  While RL was trading at 66.38 this morning my limit order hit and I sold two December 60 naked puts (RLXL) and received $338.50 after commissions.  Yes, December 60, not 65.  I’m not playing this one close to the current trading price.  That gives me over $6 in time value in addition to the $1.75 premiums as a cushion before I’d be sitting on a loss.  Taking a look at the longer chart and I see a previous support level I expect will hold again just above 60.  Of course I don’t want it to go that low or I will have just sold my puts too early.  That line of potential support is my line of protection against a massive drop in price.  The downside to RL right now is the lower highs it has been hitting.  I’m banking on that line to break soon or at least not go below 60 before December options expiry.