3 Naked Puts on Popular Stocks

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naked puts - 3 Naked Puts on Popular Stocks

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Naked puts are not some form of extreme exercise regimen. They are option trades — ones that I have found to be exceptionally useful.

handholdingmoney185They are the opposite of selling covered calls, which requires investors to purchase the underlying stock and subsequently to sell calls against that stock. The downside is that it requires you to spend capital to buy that stock.

However, the advantage of naked puts is that roughly the same benefit exists, but you do not have to actually purchase the stock before making the trade. You may have the stock put to you, meaning you’ll have to buy it upon expiration. However, in the meantime, you can use that capital for other things.

You can make some generous premiums if you sell naked puts on stocks that are expensive.

Make certain you have the capital to purchase the stock in the event it is put to you, or that you can buy back the put at a loss if the trade goes against you.


Naked Puts to Sell: Priceline Group Inc (PCLN)

Naked Puts to Sell: Priceline Group Inc (PCLN)Priceline Group Inc (PCLN) proved to be a very successful naked puts trade for many months a couple of years ago.

It still is now but carries more risk. It has much less cash on hand than it did, and PCLN is probably close to fairly valued now, if not slightly overvalued.

Still, by selling naked puts that are far out of the money, you give yourself a buffer before the stock is potentially put to you.

PCLN stock closed at $1,410 per share on Wednesday. The Oct 21 $1,275 naked puts are selling for right about $10, so you could pick up a cool grand, and get out before the next earnings report. That’s a 10% downside buffer available to you, also.

If you want some more risk, sell the Nov 18 $1,200 calls for $14.90. You earn more and you have a 15% buffer, but earnings will occur in early November, so be ready.

Naked Puts to Sell: Chipotle Mexican Grill, Inc. (CMG)

Naked Puts to Sell: Chipotle Mexican Grill, Inc. (CMG) Chipotle Mexican Grill, Inc. (CMG) is having a lot of trouble. Frankly, I don’t like the stock. However, I recognize that others may disagree with me, and may be willing to buy CMG stock but are concerned about some downside risk.

If that’s the case, then naked puts may be a way to go.

You could sell out-of-the-money puts, and be happy if you keep the premium and don’t have the stock put to you. Or you may be happy to get the stock at the lower price if put to you, while the premium makes your effective buy point even lower.

With CMG stock at $404, the Oct $375 naked puts are selling for $6.06.

If put to you, then, you are getting the stock at an effective price of $368.94, which is about 9.5% below its current price.

Naked Puts to Sell: Apple Inc. (AAPL)

Naked Puts to Sell: Apple Inc. (AAPL)It’s not the absolute expensive stock it once was, selling for over $700 per share, but Apple Inc. (AAPL) does provide naked put sellers with opportunity.

It has roared back from its low of $90. I frankly don’t know which way it goes from here, but I do know that it won’t likely fall that much before earnings unless the market corrects.

Earnings will come after Oct 21 expiration, so with AAPL stock around $108, you are probably okay to sell the Oct 21 $105 naked puts for $2. That’s not a massive premium, but getting AAPL stock at $103 isn’t a long-term bad move, either.

Just remember that holding it into earnings is a crapshoot. AAPL doesn’t crush estimates like it used to, so maybe you are getting in cheap and maybe not.

Over the long-term, you’ll be fine, but you may not be thinking long-term so I just want you to be aware of that risk.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He also is the Manager of the forthcoming Liberty Portfolio. As of this writing, he had no positions in any security mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/naked-puts-popular-aapl-cmg-pcln/.

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