Options for Week #47

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 Apple, Bank of America, Starbucks and McDonald’s. 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: Netflix

Netflix has an amazing growth story, but this was realistically without any competitors. Now the big boys have turned up to take away their market share. Apple, Amazon, AT&T (TimeWarner) and Disney have come to the table and seem well positioned to take a huge share of this booming market. Netflix already got beaten down because of this, but had a recent run up from $250 towards $310 while nothing really changed. I think with a global recession looming, a heavy-spending company with a P/E ratio of 98.60 might be a great place to earn some cash from a short position.

Current price: $310,48
P/E: 98.60 (Forward 56.39)
52 week range: $231,23 – $385,99

Company #2: Apple

Apple seems to be equal to the entire market, earnings and revenues haven’t risen yet the stock prise is up heavily. Around 65% year to date already. The company definitely looks top heavy from here. It could present a good opportunity to earn money with a play to the downside.

Current price: $261,78
P/E: 22.09 (Forward 17.61)
52 week range: $142,00 – $268,00

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

Although industrial production numbers keep dragging the economy down, I think we, as investors, cannot miss the opportunity 3M presents us today. Many of its peers are around or at their 52 week highs. 3M has a more diversified portfolio and stable dividend history than any of its peers.

Current price: $167,60
P/E: 20.06 (Forward 17.30)
52 week range: $150,59 – $219,75

Company #2: Cisco Systems

Funny, a hugely diversified company with a great (recent) turnaround story got slammed for their earnings. Well not so much earnings, more so for their negative China outlook. I consider Cisco as one of the few realistic and honest tech companies around. What the future might hold in regards to this fact is that either A) other tech companies will make a heavy fall because of China related news in the nearby future, or B) Cisco will get bought up by ‘buy the dip’ investors as it represents a cheap growth stock with a reasonable dividend.

Current price: $44,85
P/E: 16.00 (Forward 13.20)
52 week range: $40,25 – $58,26

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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2 Comments

    • DutchIndependence

      Hi DividendMill,

      Nice to hear you think of these names as a solid opportunity too! Best of luck to you!

      DI

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