Options for Week #4

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 Boeing, Target, AbbVie and Gilead Sciences. 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

I have nothing against Delta Airlines, a wise man once told me to never invest in airlines but I’ve seen quite some dividend growth investing focused investors pick up the stock in the recent years, something must be going well.

The point is that now, with the fear of a global spread of the Corona Virus, airline stocks are getting hammered, however just based on the recent trading days, Delta got less hammered than it’s peers. It’s a very thin line to base a trade on, so make sure you do more research before starting a position!

Current price: $58,81
P/E: 8.03 (Forward 7.40)
52 week range: $46,90 – $63,44

Company #2: Netflix

Funny, that is the only way I could describe the current price of Netflix. The ever growing competition and burning cash flow rate killed the stock after earnings. Yet now the Chinese Corona Virus is spreading the stock ran up like crazy because people would stay inside and watch Netflix. Even though it looks like the virus will spread, it’s still mostly in China, where Netflix doesn’t operate. Also the fact that people around the world will stay inside and watch more Netflix doesn’t equate to a huge run up in subscribers. People that are subscribed to other services will watch those services, not just start buying Netflix subscriptions… In my view this calls for a correction to the downside.

FYI: This is how much cash Netflix burns annualy, can you spot the trend?

Current price: $353.16
P/E: 112.15 (Forward 64.84)
52 week range: $252.28 – $385.99

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: V.F. Corporation

V.F. Corporation had some strange years. The old and trustworthy king of clothing was very cheap back in 2017 which was a good entry point for a dividend aristocrat of this quality. It had a nice run up, spun-off the old jeans businesses and now keeps trading around the same price for a while. Recently it dropped 10% and then some more on their earnings report. VFC tends to do this more often with earnings, not due to very dissapointing earnings, but due to a nice run up in stock price. This leads me to believe that it might be a nice entry point for a short put.

Current price: $84,53
P/E: 24.89 (Forward 21.81)
52 week range: $76.77 – $100.25

Company #2: Discover Financial Services

There is a lot to like, low P/E, it hasn’t ran up as absurdly high as it’s peers and a pullback after their earnings report. It also has a higher dividend than it’s peers which might provide buying across investors looking for yield in the Credit Services sector. The dip seems overdone and I’d be very interested in opening a long position here.

Current price: $76,29
P/E: 8.62 (Forward 8.06)
52 week range: $64,86 – $92,98

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.

2 Comments

  1. Nice to meet another option seller in the FIRE space. I only restarted in January. Seeing a post like this inspires me to blog about it.

    • DutchIndependence

      Hi Amber Tree,

      Thank you for the kind words! Best of luck to you with your option trading!

      DI

Next ArticleOptions for Week #5