by Michael Shulman | November 5, 2013 11:11 am
Many tech names — across sectors — tend to be more volatile than the market. Traders love the stocks and earnings can be wildly uneven. This creates great income opportunities for investors looking for income well above the paltry yields on traditional income stocks. Here are five tech names with great premiums on their puts that are ripe for an income strategy based on selling puts.
Sandisk (SNDK): Sandisk is the market leader in NAND flash memory and that is the kind of memory used in mobile devices. You don’t need to pick the brand, just bet on the sector and this quarter the sale of smart phones and tablets combined will surpass sales of personal computers according to IDC. Sandisk not only sells memory it manufactures, it generates revenue and profit form licensing its technology.
Sell a SNDK weekly put this Tuesday. Choose the strike a point below the stock price and you can get a 97% annualized yield.
Cree (CREE): Cree is the market leader in LED technology and has gone mass market with their own bulbs. The company also generates a lot of revenue and profit from licensing its technology, similar to Sandisk’s strategy. The company disappointed Wall Street not with sales but falling margins – why this was a surprise is beyond me, that happens when you go mass market. This created great premiums on the puts that still linger.
Sell a put with a strike almost one full point below the current stock price and you cold get an annualized return of 46%.
ARM Holdings (ARMH): This company makes low-power, small-footprint chips found in almost everything that uses chips — smart phones, DVRs, intelligent this and that in the kitchen, personal computers, cameras — you name it, ARMH is in there. And, just like SNDK and CREE, they own a lot of patents that generate revenue and profit. ARMH is seen as a speculative stock by traders and investors due to its high multiple and that means there are terrific premiums on the puts.
Sell a November monthly put a point below the current stock price and you can get a 62% annualized return. If that is too close to the stock price, go a buck lower to a $45 strike and you can still get a 48% annualized return.
Apple (AAPL): Yes, the big name among traders and investors is also a near perfect platform for selling puts for income now that mini-puts representing just ten shares are available. I am a big Apple bull — not enough room to argue against the traders who worry about irrelevant things on a minute by minute basis.
Sell the November Week Two $515 put or mini-put — as I write this the stock is at $526 — and you net an 18% annualized return if it expires worthless.
Questcor (QCOR): This outfit may be unknown to you — I trade it often in my Options Income Blueprint Service — and is a biomedical company that produces a gel for radical and disabling or deadly infantile spasms as well as other indications such as multiple sclerosis. Traders hammer the shares on bad news that turns out not to be bad news, and the stock bounces back. This creates incredible premiums on the puts.
Sell a $60 weekly put. If it expires worthless, the annualized return is more than 60%.
Michael Shulman regularly trades these stocks and currently has a put position — the November Week Two $60 puts — open on QCOR.
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