Shortly after market open today at 9:34am, one Cash-Secured Put was sold in Mercado Libre Inc. (ticker symbol MELI) at the March 18th, 2022 $800.00 strike price at $36.32 per share. The stock price was at $863.52 when this transaction occurred which was 6.2% below yesterday's closing price of $920.57.
Mercado Libre in Spanish translates to "Free Market" in English. It has been on my watch list and I had established an $880 price alert with my broker (Schwab), who notified me by email immediately after the market open that MELI's price had declined below my specified price. Worldwide stock markets opened with precipitous declines in immediate response to the Russian invasion of Ukraine. Mercado Libre's 6.2% decline at the open seems like an over-reaction since their business model in Latin America is unlikely to be substantially impacted. Nevertheless, given my current Slightly Bearish Overall Market Meter outlook, a moderately out-of-the-money (i.e. strike price below the stock price) Cash-Secured Put position was established. The probability of the option expiring worthless on the March 18th expiration date was 77.4% when this position was established. The Implied Volatility of this Put option was 77.5 when the position was established--a very high level given that there is no quarterly earnings report prior to the options expiration date.
Mercado Libre is often referred to as the "Amazon of Latin America" because of their similar leading position in their fast-growing e-commerce and fintech payments business throughout Latin America. But unlike Amazon, Mercado Libre does not have their own web services platform business. According to Reuters Research, Mercado Libre has a solid Buy rating from the twenty-four analysts covering the company. Seventeen analysts rate it as either Buy or Outperform, 7 rate it Neutral, and none rate it as either Underperform or Strong Sell. Their current average target price is $1,663.57 which is +92.6% above its current price.
Some key numbers for this Mercado Libre Cash-Secured Put position are:
Cash-Secured Put Cost Basis: $76,368.67
Profit if Stock Price Above $800 Strike Price on March 18th, 2022 Expiration Date: $3,631.33
Days Until Expiration: 23
Absolute Return-on-Investment: +4.75%
Annualized Return-on-Investment: +75.5%
As always, I do encourage your email questions related to Covered Calls (and their synthetically equivalent Cash-Secured Puts).
Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)--partlow@cox.net
