How do you generate income with minimal capital risk while the 535 Neros on Capitol Hill fiddle while the metaphorical fiscal house is burning? Play it very short term and very close to the vest – but do not ignore the cliff.
Four Steps to Managing Risk With Weekly Options
- First, commit capital – but do it by selling puts.
- Second, make them short term puts. December’s week one puts expire this Friday after the close.
- Third, sell them against a stock with big premiums that is volatile but you are willing to own if it is put to you. Then again, you should never be put a stock. In my service, Options Income Blueprint, we roll puts into the next week or month if the stock temporarily goes the wrong way.
- Fourth, think about what will go up (or at least stay flat) if the market sells off due to DC insanity.
No answer to that one? Consider this thought process:
- Moe, Larry and Curly – Boehner, Cantor and McConnell – continue to ignore the election and the president’s new found grit and we go over the cliff.
- Markets react negatively – and the Fed is there discussing things and saying nothing bad will happen. That means to Wall Street more cash, more liquidity.
- Currency traders will anticipate more liquidity and the dollar will go down.
- When the dollar goes down, oil, as do many commodities, goes up.
- And when oil prices go up, oil drillers and service companies go up. And, my friends, right now the drillers and service companies are pretty much undervalued as a group.
Weekly Options Pick
And my favorite is Transocean (NYSE:RIG). The company just got a nice writeup in Barron’s, and this outfit is the world’s best at deep sea drilling and platforms – a booming sector – and recently resolved most of its exposure to the Deepwater Horizon disaster.
The stock has put in a solid bottom around $45, and you can get nice premiums selling the RIG $45 weekly puts with a return of 0.5% or 25% on an annualized basis. This position exposes you for but a week.
Think about it.
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