Options for Week #37

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!

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:

UPS, they had a nice run up since early June, from about $95 to $120 right now. Looking at how hard the transport sector gets hit when a certain American decides to Tweet about China and the current price of FedEx I wouldn’t be surprised to see the price of UPS trend downward in the remainder of this year.

Current price: $120,08
P/E: 21.94 (Forward 14.77)
52 week range: $89,89 – $125,09

Company #2:

Target has had a stellar earnings round last month. They managed to stay with Amazon and Walmart in sales and seems to be growing online sales more and more. However I think the mega jump from $85 to $110 in two or three weeks might be overdone. Although American consumer spending numbers seem fine, Target is priced for perfection and a recession quickly hits consumer spending are related companies.

Current price: $109,85
P/E: 18.44 (Forward 16.65)
52 week range: $60,15 – $109,85

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:

3M, a company that is hit hard by the ongoing trade war tension and some less than optimal earnings. However the company has managed to raise their dividend every year for 60 years and has faced many bad periods and recessions. They are so diversified and focused at the same time that they will get through it. The current price/earnings still looks slightly expensive, but this is often the case with premium companies. Right now you have an opportunity to make money on a solid name which has been beaten down and offers some nice upside.

Current price: $163,94
P/E: 19.95 (Forward 16.17)
52 week range: $154,00 – $219,75

Company #2:

AbbVie has been trending down for about a year now. The recent news that they will acquire Allergan has punished the stock slightly more. A spin-off company from a dividend aristocrat (Abbott) that has raised their dividend tremendously in the recent years seems to be focused on diversifying their business by acquiring another big pharmaceutical company. I think they offer huge upside in the long term from the current price point.

Current price: $67,62
P/E: 24.37 (Forward 7.21)
52 week range: $62,66 – $96,60

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. Currently I sell most of my options for either December 2019 or January 2020.

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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