Options for Week #5

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 Delta Airlines, Netflix, V.F. Corporation and Discover Financial Services. 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: Apple

Apple had quite decent numbers, but if anything was proven it was the facts that 1) Apple lost revenue and profit YoY, and 2) the revenue growth in Apple services was declining, meaning Apple remains a hardware company instead of a software company.

We can all just stop valueing the company at software multiples and return to normal levels. I have a bearish outlook on this company for the short term. Of course long term, if they continue to rake in the cash like this it remains a solid investment, just not at current prices.

As an extra, production of the iPhone in China is at least reduced or maybe completely stopped due to the Corona Virus, even all of Apple’s stores in China will remain closed to at least the 9th of February.

Current price: $309,51
P/E: 26.11 (Forward 20.48)
52 week range: $164,56 – $327,85

Company #2: Netflix

Netflix has featured in the same post last week, the price went down with $8, furthermore my outlook remains the same:

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.

Current price: $345.09
P/E: 109.59 (Forward 63.35)
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: Walgreens Boots Alliance

Walgreens remains a stock under pressure from a potential move of Amazon into the pharmacy business. Even with Amazon there, there would be enough space for Walgreens, CVS and Amazon. The sector is growing every year. Not long ago we had takeover rumors and the stock quickly went up to $64. We’re back at the bottom again and we’re being offered a dividend aristocrat with more than 3,5% yield and a very, very reasonable valuation.

Current price: $50,85
P/E: 12.50 (Forward 8,42)
52 week range: $49.03 – $74,94

Company #2: Wells Fargo

Wells Fargo has been throwing around negative headlines not all too long ago. The company seems stable again and offers a generous dividend of around 4,35%. Compared to it’s peers JP Morgan and Bank of America they have been punished much more recently. I agree that there is downside risk to the banking industry, however much more pain has already been inflicted on Wells Fargo. And if we remain in a bull market and return to higher prices, Wells might have a bigger run up, to correct for it’s lower valuation.

Current price: $46,94
P/E: 11.67 (Forward 10.25)
52 week range: $43,34 – $54,75

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!

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