3 Naked Puts for $1,000 in Summertime Cash

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Need some extra cash for the summer? Then considering selling some naked puts. These are options trades, and they usually require Level 4 options approval, but most brokers shouldn’t stonewall on getting this option added to your account.

3 Naked Puts for $1,000 in Summertime Cash

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Naked puts contracts are when you sell the right for someone else to “put”, or sell, 100 shares of a given stock, at a certain strike price, on or before a certain contract expiration date.

So if the stock is above that strike price on the date of contract expiration, the stock will not be put to you, so you will keep the premium that you received for selling the contract. Naked puts are one of the primary strategies for generating additional income in my stock advisory newsletter, The Liberty Portfolio.

You’ll keep the premium even if the stock is put to you, but the premium will have the effect of lowering the effective price you buy the stock at. Or you can think of it as just having cash put into your pocket and having to buy the stock. That’s why you should chose stocks you wouldn’t mind owning.

Naked Puts: Mastercard (MA)

Naked Puts: Mastercard (MA)

Mastercard Inc (NYSE:MA) can be a great stock to sell naked puts against. Although it’s a bit pricey right now, as one of the members of an oligarchy, I think having it as a potential long-term hold is potentially a grand idea. The great thing about MA stock is that it has very little capex, and tons of free cash flow — almost $4 billion per year.

It has billions of net cash on its balance sheet, and continues to be a premier player in financial services. It continues to innovate, with its new MasterPass product allowing individuals to make digital in-store payments with an Android device. This is terrific for MA, because anything that facilitates payments, of which MA will get a fee cut, in any environment — from grocery story to train station or restaurants — expands the reach of MA.

MA stock closed at $121 on Wednesday. I think selling the 30 June $121 naked puts for $2.10 or thereabouts is a decent play here. You’ll earn $210 per contract, so I would sell two of these for $420 total. The contract earns you a 1.75% return for a 37-day holding period, or 17.5% annualized.

Naked Puts: Teva Pharma (TEVA)

Naked Puts: Teva Pharma (TEVA)

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has had a difficult year. The Israeli leader in generic pharmaceuticals is down about 45% over the past year. TEVA has been on the hunt for a new CEO as it restructures and looks to sell non-core businesses.

Copaxone was one of the first drugs to treat multiple sclerosis, but is about to go off-patent, so it will see generic competition. In addition, after acquiring Actavis, Allergan plc Ordinary Shares (NYSE:AGN) got 100 million shares of TEVA stock which will now be permitted to hit the market, putting potential downward pressure on TEVA.

TEVA remains a prime company in the pharma space, however, and I think shares are worth looking at down here. With Wednesday’s closing price of $29, selling naked puts could be a great way to both generate income and get TEVA stock put to you at an attractive price.

Consider selling three of the 30 June $29 naked puts for $1.30, or $390 total.

Naked Puts: Wynn Resorts (WYNN)

Naked Puts: Wynn Resorts (WYNN)

Wynn Resorts, Limited (NASDAQ:WYNN) seems to have stabilized after several months of slipping around the $100 market. The Macau casino market also seems to be stabilizing as the Chinese government crackdown on super-rich people may be running its course.

WYNN remains a supremely well-managed operation, by the legendary man whose company bears his name. There are risks to owning the stock, and I actually think it’s a better trading vehicle than an investment. Still, WYNN has long-term intrinsic value that is higher than its $124 closing price on Wednesday.

WYNN stock also offers the kind of volatility that creates generous premiums for naked puts. You have several options for selling naked puts here, but since we are just aiming to top out at $1,000 for the month, I might suggest selling the 30 June $120 naked puts for $2.20. Just one contract will do, and that will bring your three trades to $1,030.

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


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