Options for Week #3

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 Caterpillar, JP Morgan Chase, Simon Property Group and Gilead. 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: Boeing

Boeing cannot seem to catch a break. Every week there is news of airlines or countries postponing the date on which they would allow the new Boeing 737 Max plane to fly again. Then also Boeing keeps publishing bad news about other software errors and let’s not forget internal e-mails of employees calling the plane a joke and it’s creators clowns. I really don’t think the stock price has seen the worst yet in this entire situation.

Current price: $324,15
P/E: 49.73 (Forward 20.25)
52 week range: $319,55 – $446,01

Company #2: Target

Target has presented surprisingly bad holiday sales numbers. If you take a look at Target’s graph, you can see it went skyhigh last year on positive retail numbers and outlook. But we might start seeing a reversal right now, consumer spending is trending lower, consumer debt is already very high and wages are not growing quickly anymore. In the best retail period of the year the actual sales were already dissapointing. This, in my view, presents a setup for lower stock prices across the retail sector.

Current price: $116,92
P/E: 18.73 (Forward 16.90)
52 week range: $67,17 – $130,24

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: AbbVie

AbbVie had a rocky year, after reaching all time highs at around $120 a share, it started trending lower on patent fears. Then there was the news of the Allergan takeover that required a lot of debt, investors initially didn’t like that and punished the stock price. Now it has regained ground from around $60 to $90 again, but for me the top isn’t in yet. It is a dividend aristocrat with a high yield of 5,36% as of writing. In recent years it has showed that it’s able to rocket higher all of a sudden, and I wouldn’t be afraid to bet on that possibility again.

Current price: $88,00
P/E: 39,41 (Forward 9,27)
52 week range: $62,66 – $91,99

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: $62,98
P/E: 29.92 (Forward 9.05)
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!

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