Options for Week #41

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 ASML, Applied Materials, Pfizer and JD.com, 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: Applied Materials

As we’re seeing a slow down in the economy you can find quite some companies that have been trending lower over the past year, but not AMAT! That’s right, one of the most cyclical sectors has hardly shown any weakness and I think in the short to medium term you can profit greatly from going short.

Current price: $50,88
P/E: 16.98 (Forward 15.20)
52 week range: $28,79 – $52,62

Company #2: Apple

Apple has been on a tear in 2019, moving higher by more than 60%. Just last week they announced iPhone 11 sales were more than anticipated which send the stock higher by almost 3%. It’s still to be seen how much demand there actually is for their new products. I’m not saying it will turn out to be a flop but I think Apple is quite richly valued. Remember when we were at this share price last year around this time?

Current price: $227,01
P/E: 19.72 (Forward 17.83)
52 week range: $142,00 – $232,35

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: Cisco Systems

Cisco hasn’t really gotten back to their usual flow after their most recent earnings. They dropped quite a bit and are now in the middle of their 52 week range. As they have more risk priced in due to their cautious outlook compared to the others in the technology sector I can see Cisco outperforming its peers in the next few weeks.

Current price: $47,52
P/E: 16.95 (Forward 13.31)
52 week range: $40,25 – $58,26

Company #2: 3M

Like Cisco, 3M has been beaten up more than its peers in the same sector. 3M is a dividend king which has survived many recessions and it is currently in a turn around period. As its 29% from its 52 week high I think we can see some serious outperformance from this dividend monster.

Current price: $155,82
P/E: 18.96 (Forward 15.42)
52 week range: $150,81 – $219,75

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.

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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