Options for Week #6

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, Netflix, Walgreens Boots Alliance and Wells Fargo. 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

Applied Materials will report their earnings on the 12th of February. I’m expecting normal earnings looking back at the previous quarter, however their outlook might be somewhat bearish. With all of the supply chains and demand from China coming to a halt, we might be in for some fireworks.

Current price: $61,71
P/E: 21.75 (Forward 14.04)
52 week range: $36,80 – $64,93

Company #2: Boeing

Boeing keeps delivering (excuse my French) shit news. Software problems, bad internal memo’s, financial distress due to distorted priorities (stock buybacks). However the stock price is not willing to budge a lot, I believe this could be due for a correction within a few months.

Current price: $336,75
P/E: 39.45 (Forward 19.06)
52 week range: $302,72 – $446,01

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

Altria is going back into super-sale territory. This high yielding dividend aristocrat has run into some trouble with vaping and fears of declining numbers of smokers. Altria’s management is well informed and right for the job to turn the ship around. They might’ve bought their stake in Juul slightly early, but now they put their own people in the management and they could scoop up the rest of the company for pennies on the dollar. On a long track record, one mistake doesn’t demote the management in my opinion.

Current price: $46,22
P/E: 13.47 (Forward 9.85)
52 week range: $39,30 – $57,88

Company #2: International Business Machines

Personally I always have had my eyes on IBM. They have certainly lacked progress the last 15 years, but continue to be a cashflow machine with a high yield for shareholders. I’ve always been hold back of investing because of their CEO, now that she is gone it seems to me (and the market) that the only way is up for IBM. Together with their Red Hat acquisition they seem to become a part of the new technology world, waiting for that moment while gaining a 4,2% dividend isn’t all to bad.

Current price: $153,41
P/E: 14.27 (Forward 10.82)
52 week range: $126,85 – $158,75

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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4 Comments

  1. Thx for this. I will look at altria in the cominge days. I have reached almost my trading linit and it just does not fit.

    • DutchIndependence

      Hi Amber Tree, Altria seems like a winner from this price point! Good luck!

      DI

  2. Erik

    Unfortunately passed my trading limits many times now due to the continuously rising of the markets. Already had to add money couple of times in the past weeks. Sadly I was to early. Every news item is explained as good news. Insane markets and difficult trading.

    • DutchIndependence

      Hi Erik, sorry to hear that, I’m in somewhat of a similar situation unfortunately. Currently markets just view bad news as good news as it means the ‘no-backbone-FED’ will just throw more free money into the markets. Hang in there, this cannot keep going on forever!

      DI

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