Options for Week #2

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 did something slightly different, we looked at sectors instead of particular stocks. 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: Caterpillar

We’re at the end of the economic cycle. Heavy machinery will suffer greatly at such times. Also in the upcoming week the USA and China should sign the ‘Phase One Trade Deal’, of which we still know nothing and for which Xi Jinping will not even come himself. A setup for dissapointment if you ask me.

Current price: $146,13
P/E: 14.18 (Forward 13.61)
52 week range: $111,75 – $150,55

Company #2: J.P. Morgan

The banks are standing sky high currently but it seems like they’ve run out of steam. It’s their turn this week to report their earnings which might start showing some weakness, or not, that is the educated guess you’ll have to make. In the medium to long term it looks like the Federal Reserve will cut rates sooner than raise them, which is bad news for banks too.

Current price: $136,07
P/E: 13.39 (Forward 12.81)
52 week range: $98,09 – $141,10

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: Simon Property Group

Simon Property has had some tough years, much like Tanger Outlets it seems like they got dragged down in general fears. Their portfolio and balance sheets are strong and management has shown to be very investor focused. Tanger recently had a slight run up and so might SPG in my view. Once markets will hit a rough patch, money will flee to big value names that are attractively valued.

Current price: $144,79
P/E: 20.05 (Forward 20.37) (Notice that for REITs AFFO is a better measure than P/E)
52 week range: $142,40 – $186,44

Company #2: Gilead

Gilead has some long term problems and declining revenues. Management is working hard to replace lost revenue and continues to be investor focused. The stock has traded in a certain channel for the past few years now. Close to $60 the stock always seems like a nice pickup, for options and/or shares.

Current price: $65,03
P/E: 30.89 (Forward 9.37)
52 week range: $60,89 – $70,50

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!

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Next ArticleOptions for Week #3