This week is still enjoyable to me. With the markets falling I’m finding some buying opportunities or more accurately, option selling opportunities. This morning’s choice was AFLAC, Inc (AFL) again. After I closed my December AFL naked puts for a profit I watched AFL take off without me aboard. I’ve been waiting for a dip to find my way back in and haven’t seen much of one yet, but with AFL at least down off its highs ($2.00+) this week I decided to go ahead and take a nibble. While AFL was trading at $57.44 I sold one AFL May $55 naked put for $2.15 and received $214.29 after commissions. It’s a half position for now. I might leave it at that, but will likely add another contract if AFL drops down to the $55 range (around 50% retracement) where it looks like it should have solid support. I didn’t wait for AFL to get down there because it actually looks pretty close to support near today’s low and could be ready to rebound already or possibly closer to $56.50 where the trend line of higher lows for the past three months is running now.
This trade gives me a potential annualized gain of only 17.0%, but I think the downside risk is very low and 17% is not such a bad annualized return anyway. I went out a little farther than two months for this one to give me a little better cushion and better probability that it finishes with a profit. If assigned, my cost per share will be $52.86 including commissions. I don’t really see AFL dropping below $51 anytime soon. If it does, then $49.50 looks like another strong area of potential support. I’ll add more by then for sure if AFL makes it below $53.00. With a dividend yield of 2.1% and a forward P/E ratio of only 8.49 (well below the industry average) the fundamentals should help with support too. AFL’s PEG ratio is only 0.79 which shows me that it doesn’t seem to be getting ahead of itself yet, again more cushion if something doesn’t go right.
I just realized that I’m still not fully invested like I thought I was after this week’s activity, but that’s not such a bad thing during a market dip. I’m going to continue to add more exposure every day or two and wouldn’t mind being 150% invested if the $SPX makes it down 9-10%. I think the recovery from there will be powerful and want to be sure I’m ready for the ride back up. Most of my options are still out of the money, so I can withstand a bigger broad market fall and still take a full profit on the vast majority of my positions. I’ve been eying CSCO as I mentioned in a comment of a recent post and now I’m even thinking of DSX too. What might come before that though is a revisit to ITRI. It’d be more of a higher risk play than AFL, but the potential return is much greater too. You might see one of those from me tomorrow or I could add another index ETF put as I build up the longer term portion of my account. With oil’s drop this afternoon and the market’s recovery we might have seen our best buying opportunities already.