Is It Time To Bail On Big Lots?
Is It Time To Bail On Big Lots? (BIG) Hello Smart Option Sellers! It seems the market is intent on pressing itself to the support levels I mentioned in Friday's late alert, as we are in sell-off mode again this morning which is pushing all the indices lower. This is also taking BIG down even further than its fall from last week. We are in a precarious spot with BIG. We can certainly take defensive action and lower our potential buy-in level, but the question now begs: do we still have faith in BIG as a whole? Digging a little deeper through its earnings report from Friday, the lowered forward guidance is the biggest concern for me. We never want to potentially be in a company that can't produce positive results in an ongoing basis. One or two bad quarters can happen to any quality company, but when you start getting into multiple back-to-back quarters of slack growth - you need to start looking a bit harder. This is where BIG currently sits. They've had a few quarters of soft earnings now and like I said, their updated forward guidance concerns me. So do we bail completely, or take defensive action and wait it out a bit more? Having to make this decision while the overall market gets hit, can muddle the answer. If the general market was on an upswing, BIG most likely wouldn't be getting hit as hard as it is. But it's not, and BIG is really getting nailed. I foresee a hard bounce imminently, that could take everything back up. But if it doesn't materialize, we could be in for even more pain. At the moment, with BIG stock near $29.25 per share, we're sitting at $3.25 below the $32.50 strike price. If we were assigned the stock today at the purchase price of $32.50, we'd be sitting with a $3.25 per share loss. On the other hand, if we wanted to get out today and buy the put option back, with our official sell-to-open price of this position at $.38 per contract, we'd have to buy it back at its current price of $4.00 per contract, which would lock in a loss of $3.62 per contract. So, here's what we're going to do: We're going to implement a defensive strategy for now ("the roll"), and lower our potential buy-in p