Despite Friday's sharp rebound in the major equity averages, some of our portfolio plays continued to suffer from the recent market downturn. Even stocks with strong technical trends were affected and our new (hypothetical) position in Cybersource (NASD:CYBS) was among the victims.
The conservative covered-call involving buying CYBS stock and selling a JUL-$17.50 Call for a cost basis near $16.85. Our suggested exit trigger was a move below the $16.60-$17.00 range, which occurred on Wednesday, June 11. Since there was no explanation for the steep sell-off, and the nearest expiration date for future options was October, a prudent action for conservative investors would have been to simply close the position. An order to sell the shares of stock and repurchase the (short) option contract required a combined debit of at least $16.00, thus the loss in the play was a minimum of $0.85 per share or 5.3%.
There's no reason to search for a catalyst for the sell-off; it's better to simply limit the drawdown as much as possible and move on to a new position that will help recoup some of the loss. With any luck, the market will consolidate on Monday and we'll look for some additional trading opportunities after the closing bell.