I charted CSX Corp. ($CSX) this morning before the markets opened after it closed yesterday at $78.96. I missed getting in again at the recent low after my naked put expired last week. Now that it’s had a few days to run higher I’m wondering if I should wait a little bit longer. CSX has run back to the high end of its trading channel and is touching its trend line of higher highs again. This climb for CSX has been steady enough that it appears to be able to last a while longer still.
If that’s the case, selling out of the money (OTM) puts at $75 probably wouldn’t be too risky, but waiting a little longer could be even more profitable. I’ll probably enter a limit order this afternoon in the hopes of catching CSX on a dip within the next week or so. The trend lines appear to be most of the story for this chart. The 10 and 20 day moving averages have been crossed so many times in the past six months it’s hard to give either of them much credit. The 50 day moving average could be worth watching. It hasn’t broken since last summer. The question I’ll face is how much risk I want to take. Selling a $72.50 strike put doesn’t give a lot of return, but is probably extremely unlikely to finish in the money by expiration. The $75 strike still isn’t too risky after deducting the premium from the cost per share if assigned, but offers a little more potential return.
If CSX falls a few dollars by the end of next week the May $75 strike puts should spike over $2.00 pretty easily and could even hit $2.25. With the Williams %R indicator still in the overbought area CSX could end up trading sideways for a couple of weeks and this trade wouldn’t hit. Futures are up this morning too which gives CSX a little more room to ride that ascending top line slowly as the opportunity to sell time slips away.
