CSX is one of the stocks I’ve worked with a few times in the past year and I got drawn back to it again today. I might be a little early on pulling the trigger (actually I’m quite late in returning to it overall), but I don’t think the downside risk is too great if my new timing is off. I’ve been keeping my eye on CSX ever since I got out the last time when my put expired worthless in January. I thought it might correct more back then, but instead it kept running higher and is $7+ higher now than it was then. Instead of continuing my wait and extending my regret I decided to take a chance after I saw CSX break above its trend line of higher highs and then add a confirmation day today above it.
While CSX was trading at $74.41 this morning I sold one CSX March $72.50 naked put for $1.30 and received $129.61 after commissions. It’s a small potential profit, but it’s also less than five weeks out. I went out of the money to give myself a cushion of 4.3% on a dip. If assigned, my cost per share will be $71.21 which is around the current level for the trend line of higher lows that started a couple of months ago. The longer trend line of higher lows from almost six months ago is almost up to $70.00. A dip and support down there would be great for me. I’d either take an assignment and sell a covered call or would be able to sell a new put again close to the same strike. I don’t see CSX falling below $67.00 based on the chart and feel comfortable even owning it down there based on its fundamentals.
CSX has a 1.5% dividend yield and a forward P/E ratio of only 12.83. Its PEG ratio is under 1.0 at 0.84 which gives some room not to be perfect with its forecasting. CSX has a beta of 1.30, so if we get a broader market correction I could get spanked quickly. I’m expecting the fundamentals to protect the downside from too far of a fall though. I would’ve preferred to wait for the April contracts to sell a new put, but after missing so much of the recent run up I didn’t want to wait any longer. I can always roll this one out farther if the April contracts look that much better or can just wait this out and go for a May contract after this one expires. This is my only March option contract, so it’s good to have something expiring then anyway. I’ve focused so much on longer term ETFs that I’ve neglected my short game. I’m trying to get over that now. We’ll see if I can be better about spreading my contracts out than I have been recently.