It’s that crazy time of the year again! It’s earnings season, and the insanity that goes along with it.
Of course, it also means that you have an opportunity to earn some higher premiums on naked puts and make some serious options income money.
That’s because the market and individual stocks tend to become a bit more volatile around earnings season. Right before and right after a company reports (mostly after), you can see stocks move a lot in either direction.
Naked puts give you the opportunity to have a stock put to you after selling someone that very right — to put a stock to you at a given price.
This can be a great way to make some money on a stock with less risk than actually owning it. If the stock is not put to you, you just make money from selling the naked puts.
As always, though, make sure you’ve got the available funds to handle buying these stocks should they get put to you. Especially when it comes to our first stock …
Naked Puts on Priceline (PCLN)
Priceline (PCLN) was a big winner for me using naked puts. I sold naked puts that were way out of the money for $2,000 premiums and just kept rolling them over.
You have that chance again.
PCLN stock sells at a net cash-adjusted price of $1,175, or 21 times FY15 earnings. It is growing earnings per share at 18% annualized, so it is a “growth at a reasonable price” stock, or close to it. If it hits $1,000 on this basis, then it would be selling at a P/E of 18.
You can sell the weekly Aug 28 $1,105 naked puts for $11, and collect a cool $1,100 in premiums for options income. Although nominally only a 1% return for a 38-day holding period, it does come out to 9.6% annualized. But in this case, it’s the absolute-dollar premium I’m loving.
If you feel like gambling, sell the Aug 28 $1,170 naked puts for $23.60, and make even more options income.
PCLN reports earnings Wednesday, Aug. 5.
Naked Puts on Southwest Airlines (LUV)
I know, I know. I’ve been harping about Southwest Airlines (LUV) a lot lately, but the value the stock provides is undeniable, and the naked puts are too juicy to pass up.
The airline industry is always going to be volatile, but the fact is that Southwest remains the cream of the crop.
LUV stock got ahead of itself and has sold off 25%, making now an ideal time to either buy it or sell naked puts against it to collect options income and possible have it put to you.
The stock is at $34.71, and earnings come out on Thursday. The monthly Aug $34 naked puts are selling for $1.10, which is a very generous 3% return for a 31-day holding period. That comes out to 34% annualized, which is almost unheard of.
I would be happy to have the stock put to me at an effective price of $32.90, even if the company disappoints and the stock falls below that price.
Naked Puts on Wynn Resorts (WYNN)
Wynn Resorts (WYNN) has been struggling for awhile because Macau has totally come apart at the seams, which nobody expected. Wynn, along with all casino stocks, have gotten whacked because of the Macau fiasco.
As I’ve always said, WYNN stock is not a buy-and-hold stock. It’s a trading vehicle. However, you can do extremely well trading WYNN if you time it right.
The stock is at $101.42 and 60% off its all-time high, and I think now is the time to start trading WYNN.
I would consider selling the weekly Aug 28 $100 naked puts for $4.80. That’s a whopping 4.8% return, or about 41% annualized.
Yes, WYNN stock could fall further depending on what happens when it reports next week. But I don’t think there’s much more downside. The 52-week low is $93.59, and the stock bounced off it pretty quickly. I think Macau is now priced in. I would sell the naked puts here and keep rolling them over.
Wynn reports earnings Wednesday, July 29.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he was long LUV. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
