Here we are in 2017, and just about to hit our first monthly expiration date. That means it’s a good time to cast our lines for naked puts that expire in February. Of course, that also means we need a quick reminder about naked puts and why I like them to generate income, especially as part of the strategy for my forthcoming stock advisory newsletter, The Liberty Portfolio.
With naked puts, you are selling the right for another investor to “put,” or sell, a given stock to you at a given price (strike price) on or before a given date (expiration date).
The idea is that if the stock falls below that strike price, and the other investor sells you the stock, then he has effectively shorted the stock at that price, and can cover immediately on expiration if he so chooses, for a profit.
Having sold the contract, you hope that doesn’t occur, so you keep the contract premium. However, if it does, you want a stock put to you that is a great long-term hold.
$1,000 Naked Puts: Starbucks (SBUX)
Starbucks Corporation (NASDAQ:SBUX) remains one of my go-to choices for naked puts. It’s a great company, it’s about to enter a new R&D phase from which it will emerge stronger and it has solid premiums.
With Howard Schultz gearing up to figure out what new initiatives Starbucks will launch, the business can continue to move forward with its current model just fine.
SBUX stock closed Wednesday at $58.45. This is a mere 5% below its all-time high. You have many different choices with naked puts here: The weekly expirations offer a wide number of strike prices, so I would go with the 24 Feb $58.50 naked puts, which are selling for $1.53. Back out the five cents in capital loss, and you have a net $1.48 sale. Sell three of these for $444 in net income.
$1,000 Naked Puts: Wynn (WYNN)
Wynn Resorts, Limited (NASDAQ:WYNN) is shaping up as a great play for naked puts. WYNN has been range bound for quite some time.
After trading much lower, WYNN stock recovered as Macau recovered, but it’s been stuck between $86 and $102; and yet, it is also a volatile stock. That makes for great naked puts to sell at high premiums.
WYNN still has a way to go for recovery, but getting it at current prices is not only a possible long-term bargain, but also a great way to get it at a tradeable price.
WYNN closed Wednesday at $91.98. There’s a terrific premium available for the 24 Feb $92 naked puts, which you can sell for about $5.30. Yep, that’s almost a 6% return for just 37 days, or almost 60% annualized. Sell one contract and bring your total sale of naked puts to $974.
$1,000 Naked Puts: Disney (DIS)
Walt Disney Co (NYSE:DIS) has plenty of things going for it, what with Rogue One: A Star Wars Story being a hit, a whole new set of Marvel films on the way, more Marvel TV shows coming and yet another Star Wars film slated for year-end.
Despite the struggles at ESPN, DIS isn’t going anywhere. I think ESPN will sort out its problems, which have to do with experimenting with a la carte streaming pricing and telling its show producers to tone down the political talk.
Still, Disney is a free cash flow generator, and it will have no problem slamming all that money to work for shareholders. DIS stock closed at $108.16 on Wednesday. I would sell the 24 Feb $105 for $1.25. No need to have the stock put to you at a higher price if your goal is $1,000 in income. That brings the total to $1,099.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock 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.
