Options for Week #10

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 technology stocks, Netflix, Apple, Altria and Royal Dutch Shell. 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.

Company #1: Delta Airlines

Delta had a rough couple of weeks, but seems to have sold off less than other airlines. Last Friday it even saw a slight rebound. Oil prices are plummeting which might mean that Delta can provide services for less costs, however if planes are empty and flights are getting scrapped they won’t benefit from this.

It seems that within a few days/weeks the corona virus will hit the USA just as much as Europe and Asia have already been hit, maybe even harder as the US administration seems to ignore the entire problem. Delta will have to cancel even more flights and will have less travelers and thus will take an even bigger beating in share prices.

This is not to say that this isn’t a wonderful company for the long term, there is just a world of pain ahead in the next weeks/months.

Current price: $45,89
P/E: 6.27 (Forward 5.70)
52 week range: $44,33 – $63,44

Company #2: Apple

Apple went up slightly last week, it rebounded from $273 to $289 while much of its peers haven’t rebounded. Apple is historically already overvalued, problems from its supply chain have been ignored and a very nearby future of problems in the USA is also being ignored.

To me this seems like a perfect setup for a nice crash to lower levels that we haven’t seen since the beginning of 2019.

Current price: $289,03
P/E: 22.83 (Forward 18.43)
52 week range: $169,50 – $327,85

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.

Company #1: Prudential Financial

Prudential has sold off together with the rest of the market in the recent months. It’s a reasonably steady dividend company that has grown it’s dividend for 11 years in a row with a high growth rate of 13% over the last five years, while keeping pay out ratios low at around 30%. It currently yields 6,30%.

The life insurance issuer has a double whammy right now as the corona virus fear makes people sell all types of stocks, and the plummeting yield on US Treasuries takes away the returns of the company, as they invest the premiums of their customers in these bonds.

Long term it remains a solid company at a now very decent price.

Current price: $69,81
P/E: 6.90 (Forward 5.10)
52 week range: $69,81 – $106,39

Company #2: Royal Dutch Shell

This is the third week in a row that Shell is featured here. I’m a huge buyer right now as the safe and huge dividend offers excellent returns for the long term. Shell is agressively lowering debt, buying back shares and paying shareholders huge amounts of money, while transitioning towards a more all round energy company that is less fixated on the oil and gas prices.

Beware before stepping in: lower prices may definitely follow as Saudi Arabia and Russia are driving oil prices much lower right now, and the current coronavirus isn’t exactly helping the oil demand/supply either. This is a LONG TERM play.

Current price: $41,87
P/E: 10.75 (Forward 7.89)
52 week range: $41,87 – $66,48

What I usually do

I usually play these kinds 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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