Hershey is Barchart's 'stock of the day'; it pops 1%
HSY's momentum gives it a price objective that is 19% above the current price, but it is trading close to fair value and it looks over bought.
By Donald E. L. Johnson
Cautious Speculator
Hershey pops extending its nice run so far this year.
It is one of five stocks on my buy list.
In this bear market, it makes sense to sell puts on bullish stocks. The goal is to buy them at discount when they dip and hope the dip won’t go deeper.
Hershey Company @HSY is BarChart.com’s top stock pick for today, according to Jim Van Meerten. He provides all the technical and fundamentals data on his daily post.
On March 22, when HSY was at about $244, I featured it as one of seven bullish stocks on point and figure and other charts. It is at $250.47.
On March 23, when HSY was at $244.21, I sold HSY 4.21.23 expiration (29 days) $235 strike puts (delta -.18, out of the money probability 74.5% and implied volatility 20.4%) for $1.80 per share on a 100-share contract. The puts option is trading at about $0.80 a share. If the stock is assigned at the strike, I can buy it at a small 3.8% discount.
While the bullish P&F chart price objective is $299, the mean consensus target price posted by Wall Street analysts is about $249, according to StockRover.com. The academic fair values is about $256. Support is around $240.
If a trader sells HSY 4.21.23 $235 puts for about $0.85 a share, the annualized return on risk would be about 4.63%.
An HYS 4.21.23 $245 strike put would sell for about $2.10 a share, or an ARoR of about 11.7%, depending on stock and options prices when the trade was done.
A trader who bought HSY at $250.14 and sold $252.50 strike covered calls for about $3.45 a share would get an ARoR of about 19%. This assumes that the trade or one like it for the same stock price and options price could be repeated every 25 days over the next 12 months, which is pretty unlikely.
My Trades
I also sold Apple Computer (AAPL) puts on 3.23.23 but bought them back at a small loss the next day when the stock corrected. Its China problems are a major concern.
At the same time, on March 23, I sold MSFT 4.21.23 $250 strike puts for $1.33 a share. While the stock is down a bit, I am holding on to the puts.
In addition to taking AAPL off my buy list, I removed Morgan Stanley (MS). Banks are too risky for me.
LINKs:
Home Page. See my more than 100 articles on options trading, stocks and watch lists. If you read several of these articles, you’ll learn how my strategies are meant to work. No guarantees. Links to useful web sites are on the lower right corner of the home page. Scroll down.
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