A new 100% Cash-Secured Puts position was established in Warner Brothers Discovery Inc. (ticker symbol WBD) at the July 1st, 2022 $13.00 strike price at $.49 per share. Five Puts were sold at noon today when the stock price was at $13.89 and the Dow was down about 700 points.
During this bear market, I am being very selective before establishing any new positions. This new WBD position has been on my watch list since the merger of AT&T's WarnerMedia assets with Discovery about a year ago. The stock price has now declined to a level that I believe is very attractive relative to its longer term price potential. Wall Street analysts concur because their current average price target is $37.33.
Given my current Bearish outlook, a conservative strike price 6.8% below the stock price was selected. The probability of the option expiring above the strike price on the July 1st options expiration date was approximately 69.2% when this position was established and the Implied Volatility of these five Put options was 68.2. Because of the sharp recent decline in the Warner Brothers Discovery stock price, this current elevated Implied Volatility provides the potential +71.5% annualized return-on-investment result shown below (despite the substantial 6.8% downside protection provided to the $13.00 strike price).
Some key numbers for this Warner Brothers Discovery Cash-Secured Puts position are:
Cash-Secured Put Cost Basis: $6,496.65
Profit if Stock Price is Above $13.00 Strike Price on July 1st, 2022 Expiration Date: $241.65
Days Until Expiration: 19
Absolute Return-on-Investment: +3.7%
Annualized Return-on-Investment: +71.5%
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net
