With options expiration upon us — or at least the monthly version of it — it’s a good time to look at selling naked puts for March expiration.
If possible, I like selling naked puts about a month out, because if I can get a 1.7% to 2.5% premium on them, then they make for a very nice annualized return. This is one of the strategies I’ll be using to enhance income for my forthcoming stock advisory newsletter, The Liberty Portfolio.
Remember, you are selling naked puts, and that means you are selling the right for another investor to sell (or “put”) a given stock to you at a given strike price on or before a given expiration date of the contract.
So if you get the stock put to you, be certain it’s a stock you actually want to hold.
Naked Puts: Mastercard (MA)
Mastercard Inc (NYSE:MA) isn’t the undervalued growth stock it was a few years ago, and it’s trading just off its previous all-time high at $109.66. However, it’s hard to go wrong with it or one of the other big card providers.
Although I’m a bit sad that net income only grew about 7% year-over-year, and it’s a bit pricey at 30 times earnings, MA stock remains a premier financial services company.
MA stock also offers some decent premiums, although volatility lately hasn’t been terribly attractive. Still, if you look at the 17 March $110 naked puts, you can sell two of them for $1.90 each, and earn $380. That just barely hits a 1.8% return, or 22% annualized.
Even if MA stock gets put to you and you decide you don’t want it, you can always turn around and sell covered calls against those shares. Thus, you’ll earn a premium for that sale, and if it’s set at a strike price equal to or above the price it was put to you at, you could end up even further ahead.
Warren Buffett just took large stakes in the four largest U.S. airlines. This was incredible because he once called airlines a “death trap for investors.” The move seems centered around the idea that Trump may lower corporate taxes, which would substantially improve profits for the airlines.
Naked Puts: Alaska Air (ALK)
Airlines are doing well as travel has picked up and I think they will continue to do well as the economy improves under the new administration. ALK stock has really soared this past year, but with Wednesday’s close at $96.96, you have a shot to sell some naked puts here.
The 17 March $95 naked puts are selling for $2. If you sell two of these, you collect $400 and hit a total so far of $780.
Naked Puts: Apple (AAPL)
With the market continuing to move up and Apple Inc. (NASDAQ:AAPL) delivering solid results, investors appear to have become bullish again on AAPL. Once again, we point to Buffett, who quadrupled his position in Apple stock.
I think part of this reasoning is not merely that AAPL is operationally doing fairly well again, but because a Trump corporate tax cut would mean Apple can repatriate its $230 billion of overseas cash. That would save it billions in taxes that could be then spun out as a special dividend.
Regardless, with Apple stock closing on Wednesday at $135.51, consider selling the 24 March $135 naked puts for $2.50. That is, sell just one of them, and get $250. That brings your total to $1,030. You’ll also have a 51-cent buffer between the closing price and strike price. That may not seem very large, but anything can happen when expiration rolls around.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.