There has been a huge sell-off in Rite-Aid (RAD).  A few days ago it was trading at over $4.50 but now it is trading close to $3.80 with more downside expected.  I would not recommend purchasing this stock anymore.  However, there is a great volatility which means there is also great option value in the stock.  Earnings is expected to be on 4/25/17.  This is a serious date that will move Rite-Aid violently up or down.

How to play?

I wouldn’t recommend purchasing the stock.  There’s too much variables in play that can cause this to move higher or lower that would end up making you sell.

Instead, I recommend looking at the August and October Strike price at the $4 or $3.50 to do a naked put.  I see this playing out in two ways.  In scenario one, you will get a nice premium when it sells at $6.50.  You will have collected it when you sold the naked put and now you will be happy that you are done with the stock.  In scenario two, the stock drops further and you end up owning the stock.  In this scenario, you will need to have enough reserves to make sure you can purchase the stock.  Scenario two will require patience and a long-term view that Rite-Aid will go up in the future.  A great earnings report will help prove scenario two as well.

I wouldn’t recommend you getting into this stock today.  I think it is better to give the weekend to plan your attack and due diligence.  Then you can execute your strategy on monday before earnings.  For those that are more conservative, wait until earnings comes out before making your play.  It might end up making more sense to play options after earnings comes out with the volatility playing to your advantage as well.

Disclosure: I do own RAD naked puts at $4 strike currently.