One of the things I love about selling naked puts is that if I sell naked puts on a stock I own or want to own, there is no downside to the trade. Regardless of whether the stock gets put to me, I’m going to come out ahead.
You see, if the stock isn’t put to me, I collect a nice premium and make a little cash to enhance my overall returns.
If the stock is put to me, I not only get to own a stock that I wanted to own, but the premium I collect effectively decreases the price at which I purchased it.
This strategy can be particularly effective in cases where a stock has recently split, or has stalled for some reason. But if your intent is to hold this stock for the long term, then you are often afforded a great opportunity. Just remember: You have to have the funds available to actually buy these stocks should they get put to you!
With all that said, here are three naked puts I like right now on three can’t-miss blue-chip stocks:
Naked Puts on Apple (AAPL)
Apple (AAPL) is in exactly this situation. After the big Apple stock split, shares surged, but have now dropped back into a trading range.
But that’s a perfect situation for those looking to sell options, and especially those selling naked puts. You want to own AAPL stock for the long term, and with the price at $111.73, you can get it at more than 15% off its all-time high.
Still, because AAPL stock has been in a trading range, you could repeatedly sell naked puts. If the stock gets put to you, great! If not, keep selling naked puts until it does get put to you.
The Nov $110 naked puts are selling for a very generous $3.60, which is 3.3% for a mere 32-day holding period — an annualized return of 37%.
That’s a slam-dunk play, allowing you to potentially get the stock at an effective price of $106.40.
Naked Puts on Walt Disney (DIS)
Walt Disney (DIS) offers another similar play. Although it hasn’t split since 2007, the stock has been wobbling around the $100-$115 range for quite some time. Right now, it trades at $109.47.
Unless you’ve been living under a rock, you’ve probably noticed that there’s a new Star Wars film coming out, and DIS stock is going to benefit from this.
The expansion of the Star Wars universe is absolutely massive. It is spreading its tendrils in every direction, into every form of media, more than I’ve ever seen done with any other property. DIS is pulling out all the stops. Disney recently released the final trailer for Episode VII, and an initial ticket rush crashed several sites.
You want to own DIS stock, but it may be January before a real move comes. Until then, sell the Nov $110 naked puts for $3.25. That’s just about a 3% return for 32 days, or 33% annualized.
Naked Puts on Nike (NKE)
Somehow, Nike (NKE) keeps reinventing itself. I am impressed at how this shoe and apparel company keeps up with the times, and maintains relevancy in a world as fickle as fashion.
Personally, I don’t like to own retail clothing companies or shoe companies because consumer tastes can change on a dime. I also think NKE stock is vastly overvalued based on today’s price of $133.21.
That being said, others may disagree and NKE stock is offering some very nice premiums on its naked puts. It’s also at an all-time high, and stocks that hit those milestones tend to keep rising. Thus, it means slightly less chance that the stock will get put to you.
Yet, even if NKE stock got put to you at these prices, I wouldn’t despair. Yes, I think it’s overvalued, but the market has a way of pushing overvalued stocks even higher in this environment, so I doubt you’ll get stuck with it. Moreover, NKE stock will always be with us, so there’s no losing side here.
I suggest selling the Nov 27 $134 naked puts for $3.70. That’s 2.8%, or 27% annualized.
As of this writing, Lawrence Meyers was long AAPL and DIS.