The Best Option Income Is Found In Sideways Markets.
By selling put options on stocks close to the bottom of their trading ranges you can generate lots of current income and very attractive annualized returns.
The $217 billion semiconductor giant Intel (INTC) is a fantastic and very profitable business (with 20% profit margins) however investors always seem disappointed with the company and constantly selling shares down to the $44 level.
This profitable and growing business is dirt cheap compared to the S&P 500 and the hundreds of unprofitable business that investors keep driving up the share price. INTC trades at just 7 times EV/EBITDA compared to 18.2 on the S&P 500 (most companies on this index do not have anywhere close to the profit margins on Intel in an ideal world Intel would trade at a premium to the average company).
Trade Details:
Sell to Open May 21 $53 put on INTC for $0.80 or better using a limit order. You are paid 1.5% upfront on your purchase obligation.
At expiration if shares are above $53: put sellers keep the $0.80 for a 1 week trade and 68.9% annualized return.
At expiration if shares are below $53: put sellers will buy 100 shares of stock for every put sold at a 2.7% discount to yesterday's closing price. Now you can earn more income by selling covered calls.
For protection use a stop loss at $41.50 shares will have broken to the downside of the range and are likely to continue lower.
Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.
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@slider2990 That's and interesting and logical strategy!
What stop loss % are you operating with, did not catch it at first here?
Why should it be 41.50 and not the 44 as we seen from now to then?
When there is no obvious support levels I like to use 25% from my cost basis to give the stock room to fluctuate. At the end of the day I am happy to own the companies that I am force to buy from selling the put options and could hold long term or better yet start selling covered calls for income.
With INTC I see strong support between $44 and $42 so I set my stop loss at $41.50 on a closing basis which levels room for trading bots to print trades just under the $42 support. Hope this helps.
Thanks for reading and commenting.
Posted Using LeoFinance Beta
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