I prefer selling naked puts over covered calls. That’s because I don’t actually have to put up cash and purchase a security against which to sell the covered call. I do need to have margin available if I sell naked puts, but that’s different from actually deploying the capital, which I can use for other things.
I like to use naked puts on stocks that are better for trading than holding for the long-term, but that I wouldn’t mind holding if put to me. In some cases, I even sell naked puts against a stock I already hold and that I wouldn’t mind having more put to me.
Here are three such stocks, all of which have juicy premiums for naked puts, but are solid companies that aren’t going to bankrupt me if I have to hold them for a long time.
Naked Puts on Visa (V)
Visa (V) is really a stock that everyone should hold in their long-term portfolio. As one of the two gorillas in the credit card space, you want to own part of duopoly.
Visa stock itself has always had surprising volatility which leads to robust premiums on options like naked puts.
V stock is trading at $212.75. The Oct 24 $215 naked puts are trading for $4.40, which is a very desirable return of 2% for a 31-day holding period, or 24% annualized. That is the kind of annualized return I usually target when selling naked puts or covered calls.
If the stock gets put to you, one good move would be to turn around and sell covered calls against the stock, and you’ll probably earn another 2% or so.
Naked Puts on Wynn Resorts (WYNN)
Wynn Resorts (WYNN) is an exceptionally well-managed company thanks to the legendary Steve Wynn. However, WYNN stock can be very unpredictable, because both gaming and resort revenues can be volatile, subject to economic concerns both in the U.S. and Macau.
That’s why I’ve always regarded WYNN as a trading stock.
WYNN stock is trading at $184.75, about 30% off its 52-week highs — that’s a good time to begin trading.
I would do so by selling the Oct 24 $185 naked puts for a huge premium of $5 — that’s a generous return of 2.7%, or 35% annualized return, making it a very attractive naked put.
Naked Puts on Anika Therapeutics (ANIK)
Finally, biotech plays can sometimes offer great returns because of their unpredictability. If you can find a biotech stock with a solid cash stream from current products, that gives you a cushion in the event that some bad news hits in the few weeks you have an option open.
Anika Therapeutics (ANIK) is a leader in creating products to help joint pain and to even repair knee and ankle joints. It’s some pretty amazing technology, and the company holds the No. 2 position in the field. It has a diversified product line and is expanding globally at a rapid pace. It’s a great play and may even be undervalued.
ANIK stock trades just over $38. There aren’t a ton of strike prices, but because the stock is undervalued, I would aim to scoop it up on the ultra-cheap by selling Dec $35 naked puts. Those are selling for around $2.20. That’s a 6.2% return even if the stock isn’t put to you, and almost 25% annualized.
However, if it gets put to you, you get ANIK at an effective price of $32.80, and that’s a great price to own it at.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at email@example.com and follow his tweets at @ichabodscranium.