Make $1,000 This Month With Low-Risk Naked Puts

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For those seeking additional income beyond their current portfolio strategy, selling naked puts against blue-chip stocks is a great way to supplement that income, while also taking up a position in that blue-chip stock you’ve always wanted.

cheap blue-chip stocks

Here’s how naked puts work. You choose a stock that you like but don’t own. You will sell the right for another person to “put” the stock to you, or force you to buy it, at a given price on or before a given date (‘expiration date”). If the stock is below that price on the expiration date, you are forced to buy the stock as agreed.

However, since you are taking on this risk, you collect money (“premium”) for entering into the agreement.

The idea is that the stock will continue to move higher, you will not be forced to buy it, and you keep the premium. Of course, if the stock is put to you, you aren’t unhappy because you wanted to buy it in the first place.

I choose blue-chips and undervalued stocks because if the stock gets put to me, those are the stock I want most to hold.

Here are three such trades that I like right now.

Naked Puts on Philip Morris International Inc. (PM)

Naked Puts on Philip Morris International Inc. (PM)Philip Morris International Inc. (NYSE:PM) is a good choice. The company is one of the greatest names in history and comes with tons of free cash flow to cushion it against any downside. The great thing about PM stock is that it has taken its lumps time and time again, but it remains standing because Philip Morris sells a product people are always going to buy. It’s addictive! What could be better?

PM stock trades at $82.71 as I write, which puts it in proximity of its $82.50 strike.

You may want to sell the PM March $82.50 naked puts for $1.35. If the stock is not put to you, you earn a 1.64% premium, which is about the upper end of the range for a blue-chip put.

If you want to aim for $1,000 total from each of these trades, I suggest selling two of these, for a total of $270.

Naked Puts on Teva Pharmaceutical Industries Ltd (ADR) (TEVA)

Naked Puts on Teva Pharmaceutical Industries Ltd (ADR) (TEVA)Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) may not sound like a blue-chip, but it’s a $48 billion leader in the generic drug industry, and also has a few proprietary drugs of its own. It was also the very first stock I ever purchased, and I only wish I’d still had it in my portfolio.

TEVA stock has reached the point where, even after its R&D budget gets spent, its portfolio of drugs kicks off enormous free cash flow to the tune of $2 billion to $4 billion annually. It is exceptionally well-managed, with $2 billion in cash on hand, while aggressively paying off debt.

TEVA stock trades at $57 right now, and you can sell the March $57.50 naked puts for $1.67. Now you may think that’s wrong, selling a naked put “in the money,” but TEVA stock may not trade below that strike price come next month. Even if it does, you net out $1.17, or 2% for the trade. That’s great for a blue-chip, above the upper end I would expect.

Sell two of these for $334, bringing your total to $614.

Naked Puts on Monsanto Company (MON)

Naked Puts on Monsanto Company (MON)Yes, Monsanto Company (NYSE:MON) is a blue-chip, and at a $60 billion market cap, it has also proven its resilience time and again. Despite all the nonsense hype over how bad GMO food is supposed to be (it isn’t), the stock continues its relentless climb.

It has $3.1 billion in cash and regularly generates $2 billion in free cash flow every year. This is another in the money play, although just barely. The stock trades at $124.66. The March $125 naked puts trade for $2.40. That’s a 2% premium right there, even if the stock is put to you.

Is having MON stock put to you all that bad? No! That’s why I’m suggesting it.

Sell two of these for $480, and you’ll have hit your target, generating a total of $1,094.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He is the manager of the forthcoming Liberty Portfolio, has 20 years’ worth of experience in the stock market and has written more than 1,200 articles on investing. As of this writing, he did not hold a position in any of the aforementioned securities. He can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/low-risk-naked-puts-pm-mon-teva/.

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