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Now that the Federal Reserve has made one rate hike and intends to do more this year, the real estate investment trusts (REIT) have been hit really hard. I think they overdid it on the downside, so I’m trying to take advantage of that situation with today’s trade.
Everyone is betting on interest rates rising — well, they haven’t risen very much yet, and I think it’s going to be a much longer process. Welltower Inc (NYSE:HCN) has a 5.2% dividend yield and is one of the better rated REITs.
With that in mind, I’m recommending the following naked put write on Welltower:
Sell to open the HCN Feb. 17th $55 put at about $0.35.
For those who aren’t familiar with this strategy, the basic premise for a naked put write is to sell (also called “writing”) put options and thereby get income upfront in the form of the option premium. By selling a naked put, you’re betting against the buyer of that put option, who thinks that the underlying stock is going down.
As the seller, you’ll want to watch for a drop below $55. If the buyer is wrong and the stock goes up, the put will expire worthless — so, as long as HCN remains above $55 through expiration, you (as the seller) would have no other obligation and would simply walk away with 100% of the option premium you collect today.
And HCN isn’t much of a fast mover, which is another reason it’s my preferred play for a contrarian bullish position on a REIT.
Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.