St. Paddy’s Day Puts to Steal Gold from the Rainbow

by Lawrence Meyers | February 15, 2012 7:31 am

March is setting up nicely as a month to sell naked puts against some quality stocks. I’ve written before about this strategy[1], in which I sell these naked puts and collect the premium for income.

If the puts get exercised, I’m perfectly happy to own the underlying stock because I’ve done my research and think the stock is fairly priced and a long-term hold.

And if they don’t, then I’ve just created my own pot of gold that’s full of short-term option profits!

Trade #1: Dollar Tree

First up is Dollar Tree Stores (NASDAQ:DLTR[2]). I’ve followed this company and stock for many years. And every time I compare it to the other discount-store chains, it always comes out on top.

The dollar stores are undergoing a renaissance of sorts, as they steal market share away from grocers. The stock traded Tuesday at $88.50.

I love selling the DLTR March 87.50 Puts for $2.20 here. This gives me the 2.5% targeted return that I like when I sell naked puts, plus an extra dollar of downside protection.

Trade #2: DirecTV

DirecTV (NASDAQ:DTV[3]) is another longtime favorite of mine. I just have so little concern about owning a company that literally throws off billions in free cash flow every year, has a fabulous brand and marketing presence and is expanding like wildfire in Latin America.

The stock is trading at $45.85.  I plan to sell the DTV March 45 Puts for $1. At a 2.22% return, it isn’t exactly on target, but if the stock dips a bit, the premium will rise.

Trade #3: Leucadia

Leucadia National Corp. (NYSE:LUK[4]) is a conglomerate that’s been run by the same guys for 30 years. Like Warren Buffett, they take big positions in a variety of companies and reap the benefits. Their holdings are highly diversified, and the stock is never given the credit it’s due.

There isn’t a trade to make today, but keep a careful eye on it.  At $28.63, it’s trapped in the middle of a wide strike price spread between $30 and $25.

If it pops back up to $30, or drops down toward $25, look to sell the corresponding put and aim to collect at least 75 cents on the $30 put strike, or 65 cents on the $25 put strike in March. No matter which put option you end up selling, know that it’s a great company to own if the shares get “put” to you.

Trade #4: Intel

Intel (NASDAQ:INTC[5]) falls into another category: that of the “Forever Hold” stock that you can repeatedly sell puts or calls against[6]. I have no hesitation owning Intel, but prefer to sell naked puts month after month until and unless the stock is put to me.

At $26.78, I would actually reach out to April and sell that month’s $26 put for 75 cents — an almost 3% return. While I’d like to collect more on a popular name, the premiums on steady, solid stocks like INTC tend to be smaller.

So enjoy the extra coins in yer pot o’ gold as St. Patrick’s options expiration day approaches!

Lawrence Meyers[7] does not own shares of any company mentioned. He is President of PDL Capital[8], Inc., which brokers secure high-yield investments to the general public and private equity.

  1. I’ve written before about this strategy:
  2. DLTR:
  3. DTV:
  4. LUK:
  5. INTC:
  6. the “Forever Hold” stock that you can repeatedly sell puts or calls against:
  7. Lawrence Meyers:
  8. PDL Capital:

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