Options for Week #1

Welcome to 2020! We’ll be continuing this series into the new year! In these posts we will be looking at four assets that we could sell call or put options on to create some extra income. These suggestions are just some ideas to consider. Do your own research and make your own decisions!

In the previous post we looked at ABN AMRO and Flow Traders. CLICK HERE to read about last weeks options.

The way I select the candidates is based on multiple factors:

-Price/earnings valuation;
-Trading range and/or 52 week high/low;
-Market sentiment;
-A contrarian view.

Short calls

Whenever you sell a call option it counts as a short position, you take on the obligation to deliver shares at a certain price and preferably the stock won’t go higher than the strike so that you can keep the premium without having to deliver any shares.

After the escalation of the Iran-USA tensions we already saw some red stocks on Friday, however it is far from over for now. Due to the fact that I expect a lot of declines I’ve noted sectors down below that I expect to decline the hardest over this week.

Sector #1: Industrials

Industrials have had some tough years, however in the most recents months most of these companies have had a run up due to a fake deal between the USA and the Chinese. I expect these valuations to drop significantly due to resurfacing political problems / a starting war.

Sector #2: Airlines

Due to the natural spike in oil prices oil companies will surge, on the other hand there are the airlines that’ll have to pay more for their fuel and will lose a big chunk of their profit margins.

An honorable mention would be the Technology sector, due to sheer overvaluation I’d expect some parties to take some of their profits off the table in these uncertain times.

Short puts

Whenever you sell a put option it counts as a long position, you take on the obligation to buy shares at a certain price and preferably the stock won’t go lower than the strike. This way you are able to keep the option premium without having to buy any shares.

Sector #1: Energy

Energy companies will have a good week. A spike in the oil prices pushes margins higher for companies like Royal Dutch Shell, Chevron, BP and Exxon Mobil.

Sector #2: Defense contractors

Think of names like Lockheed Martin, General Dynamics, Raytheon, Northrop Grumman, Boeing and United Technologies. If the world will get another war, the companies that produce weapons and fighting technologies will have a so to say ‘great time’. Even though their current valuations are already quite rich.

What I usually do

I usually play these kind of situations with a margin of safety of at least 10% and a medium to long term option.

Note that I’m merely pointing out some interesting names to look at. You should ALWAYS do your own research!

To find more information about options CLICK HERE.

To see my own option trades CLICK HERE.

To see the option trades I do for other people CLICK HERE.

For any questions regarding options, leave them down below in the comment section or simply hit me up on any of my social media channels!

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2 Comments

  1. Unfortunately really hard to invest in (stocks of) defense contractors in the Netherlands due to regulations.

    Was wondering which broker you are using for trading US options..

    • DutchIndependence

      Hi DM,

      I invest through BinckBank. Option contracts costs were recently reduced to €0,60, much cheaper than before. Give it a look!

      DI

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