Today I bought a put Contract of Chewy (CHWY), an online retailer of pet food and pet products, to close the short position I had taken in a put option on August 18th. The market has been volatile for the past week and a half so I closed the position a week early.
On August 18th, CHWY was trading for $56.19 when I submitted the order to sell a put contract expiring on September 18th with a strike price of $48. We received $120 to provide downside insurance for a CHWY shareholder and closed the position by repurchasing the option for $24, both before commissions. Our portfolio had $4,800 at risk for 24 days and received an annualized return of 30% on our capital exposed to CHWY.
Today, when I repurchased the CHWY put, CHWY traded for $56.32 but, as I type this summary, CHWY is down more than eight percent. Put prices are for the contract I repurchased are up (Bid-Ask: $0.25-$0.28) and the market is now 12% from our former strike price (when I closed the put the market was 15% from the strike).
CHWY is a great opportunity but, since we have less than 15% of our portfolio in cash, I would rather pay $24 and sell another put contract for CHWY than be assigned shares at $48 within the next week.