Sell These 3 Naked Puts in a Volatile Market

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The volatility in the stock market, much of it connected to the crash in oil prices, offers investors some great opportunities. The volatility creates higher option premiums, and if you like selling naked puts, those premiums are looking very generous right now.

Sell These 3 Naked Puts in a Volatile MarketOne of the best ways to play naked puts is to sell them against underlying stocks that you would like to own, or that you do own and want more of.

The theory is that you try to collect some premiums by selling the naked puts, and you hope the shares actually get put to you, if they are at a price you’d like to own shares at.

If the shares don’t get put to you, that’s not the end of the world. You can always buy them, and even set a buy-stop if you want them badly enough but are concerned the stock may skyrocket.

You’ve got great opportunities on some naked puts and stocks. Here are three that I am looking at:

Naked Puts: Apple Inc. (AAPL)

Naked Puts: Apple Inc. (AAPL) Apple Inc. (AAPL) had a lot of trouble breaking through the $100 level, but when it did, it really broke though, hitting a 52-week high of $119.75. Now, AAPL stock has dropped back to $108.22.

If you own the stock and want to add, or if you’ve been waiting to jump in, now might be a good time.

AAPL stock is a compelling stock to sell naked puts against because it has a ton of choices for strike prices, and has weekly expirations, so the choices are vast.

In this case, I’m looking closely at the Jan $105.71 puts. They are selling for $2.69. So not only do you collect a 2.5% return for a 32-day holding period (28.3% annualized), but if the shares get put to you, you get them at an effective price of $103.02. That’s a 17% discount to the 52-week high.

Naked Puts: Amazon.com, Inc. (AMZN)

 Naked Puts: Amazon.com, Inc. (AMZN) Amazon.com, Inc. (AMZN) is a very similarly positioned scenario. With AAPL, you get a growing company with earnings. With AMZN stock, you are playing a game of faith with Jeff Bezos.

I have no problem with that at this time, considering all that he’s accomplished. Nobody could have foreseen that Amazon would become a massive retailer instead of just a book outlet.

The stock closed Monday at $306.07. The same huge choices for strike prices and expiration dates exist with AMZN stock, although at $5 strike price intervals. AMZN stock is way more volatile and that means much higher premiums on both an absolute price and percentage basis.

Consider selling the Jan $300 puts for $9.60 — that’s a 3.2% return, or 36% annualized.  If AMZN stock gets put to you, you get it an effective price of $290.40, more than 25% off the 52-week high.

Naked Puts: Visa Inc (V)

Naked Puts: Visa Inc (V)Finally, consider Visa Inc (V), another of my favorite naked put plays. The stock hasn’t sold off much at all, but it is a quality company in an effective duopoly. It is only 3.5% off its 52-week high at $256.70.

You are more limited here in terms of strike prices and expiration dates, but the overall market volatility is impacting V stock’s premiums as well. The Jan $255 puts are selling for a very generous $5.50; that’s a 2.15% premium, translating to an annualized return of 23.7%.

So not only do you pick up $550 in cash, but if the stock is put to you, you get it at an effective price of $249.50.

Of course, if you have the capital available, you could sell any of these stocks in bulk and collect a lot of money, as long as you can afford to buy the stocks if they are put to you.

As of this writing, Lawrence Meyers held shares of AAPL and AMZN. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/naked-puts-volatile-market-aapl-amzn-v/.

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