Options for Week #38

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 AbbVie, 3M, Target and UPS, 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: Intel

Intel had a nice run up along with the general market lately. I’m cautious though. Their business is not the strongest its ever been and the recent run up in price seems slightly overdone. We went from around $45 to $53 in the matter of two weeks. I’m not saying Intel is a bad buy for the long term, I just think there is money to be made in the short term with a short call.

Current price: $52,54
P/E: 12.30 (Forward 11.80)
52 week range: $42,36 – $59,59

Company #2: Apple

Apple has been on a tear in 2019, rising from the low $140’s to $220. The reasoning behind Apple is quite similar to that of Intel. The shares went up quickly in the last few weeks. The rise in the technology sector seems slightly overdone while economical data is still worsening. Apple’s valuation is quite rich right now and they just presented their streaming service and new iPhones which have not been stellar. In fact Goldman Sachs immediately downgraded Apple to a $165 target price.

I expect there to be some profit taking in Apple in the short to medium term which allows us to make some money with a short call.

Current price: $218,75
P/E: 19.00 (Forward 17.10)
52 week range: $142,00 – $233,47

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: Altria

Oh Altria, what a year it has been for you. This has to be one of the highest yielding dividend aristocrats by now for sure right? The story is clear. Falling sales volume is nothing new, management always manages to offset the losses and improve margins. However lately their investments in vaping and the weed industry have been under fire and the FDA is looking in to vaping as a whole. Then there was the news of a potential merger that initially send the stock up +11%, for it to close -4%.

Simply put, the negativity is overdone and Altria offers some serious value right here. You could either play the long game with big premium puts and cash them in when the stock will rise, or you play the short to medium term and potentially get assigned some great shares at an incredible discount. Don’t forget that without any discount from the option premium, right now Altria is already yielding a safe 8% dividend.

Current price: $42,01
P/E: 12.22 (Forward 9.38)
52 week range: $42,01 – $66,04

Company #2: Philip Morris

As you might know, Philip Morris and Altria used to be one company and they are currently in talks to become one company yet again. PM has been doing great the past year, however the market punished the stock when news came out that the merger talks had started. PM is a well diversified company which works all over the globe, just not in America, therefore the company is less sensitive to American legislation. This presents a nice opportunity to create some income with a medium to long term put and a safe margin of safety.

Current price: $73,05
P/E: 14.49 (Forward 12.93)
52 week range: $64,67 – $92,74

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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