Selling Puts in Johnson Controls

During a crisis like we are going through there are two ways to look at the market. One can stick their head in the dirt like an ostrich, or one can practice an approach I have dubbed "Linking".

Linking: Buying fundamentals in face of illogical markets; named after Stephanie Link

Basically, take the Action Alerts Plus approach and buy stocks on fundamentals and see the big market sell offs as good chances to buy good companies at a discount. One name that AAP really likes that I think looks interesting is Johnson Controls (JCI). It did not take a big dive with the SPX as we sold off earlier in the week. The low tick was barely below $40 in this name. Good stocks sell off less on sell offs and rally more on recoveries. JCI appears to be doing just that.

Even better the stock's implied volatility has been going up and up and earnings are still about 20 days away. I think the stock is going to be either moving higher, or at a minimum sitting above $40 for through the end of the month. With the vol jacked up I think a put sale in JCI or a put spread in JCI makes lots of sense. Let's Link JCI and sell a Nov 41 put at $1.25. With any luck JCI could turn into a good wheel candidate (selling puts to get long then selling covered calls).

Trade: Sell to open JCI Nov 41 puts at $1.25.

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At the time of publication, Mark Sebastian held no positions in the stocks or issues mentioned, while the Action Alerts Plus portfolio is long JCI.

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