One of the ways subscribers to my stock and options advisory newsletter, The Liberty Portfolio, generate additional monthly income is by using naked puts. By selling puts, you choose a stock you either own or might want to buy. You sell the right for someone else to put the stock to you, that is, force you to buy it, at a particular price (strike price) on or before a particular date (expiration date).
You collect a premium (money!) for selling that right. Now, if you want to own the stock, and if it gets put to you, you should be delighted. You got the stock, and also made money in the process that you effectively can apply against the purchase price. If you don’t get it put to you, you can still buy it anyway, and earn the premium as a bonus.
It’s this premium that The Liberty Portfolio uses to enhance income by $1,000 per month. Here are some examples of selling puts that you might consider to earn $1,000 this month.
Selling Puts: Disney
I think you have to own Walt Disney Co (NYSE:DIS) stock. Even though people kind of soured on The Last Jedi, the film is still a monster hit, Disney announced a fourth trilogy and it continues to exploit this property and many others from the Marvel and Pixar brands as well. That’s on top of all its other businesses.
So DIS stock is perfect for selling naked puts. Right now, DIS stock trades at $109.47, and so it is right near the $110 strike price. I would suggest selling the 16 Feb $110 naked puts for $3.10, and sell two of them for a total of $620.
You earn a return of 2.8%, which is pretty generous for Disney naked puts, and that’s for a mere 37-day holding period, or 27% annualized.
Selling Puts: Vanguard Healthcare ETF
Healthcare is one piece of human existence that is fundamental at this point. Obviously, that’s the case or politicians and Americans wouldn’t be getting into arguments over Christmas dinner over it.
Even though the health insurance mandate has been removed, healthcare providers are never going to have a shortage of customers. Thus, like any other consumable, it’s a good sector with recurring revenue.
The Vanguard Health Care ETF (NYSEARCA:VHT) owns all the big names in healthcare and would make for a fine core holding to any portfolio. You have a lot of choices here, with the VHT closing Wednesday at $160.
You can sell one of the 16 Feb $160 naked puts for $2. While that’s only a 1.25% return, it’s also only for a 37-day holding period, so that’s a 12% annualized return. By adding this to the DIS naked puts, you now have earned $820 by selling puts!
Selling Puts: IAC/InterActiveCorp
IAC/InterActiveCorp (NYSE:IAC) is Barry Diller’s famous mish-mash of e-commerce businesses. Diller has worked a lot of magic by building up this incredible holding company and then spinning off various pieces of it.
He had the prescience to see which businesses would take off and could be monetized. Some of these names, spun-off or otherwise, include Match Group, Inc. (NASDAQ:MTCH), HomeAdvisor, Investopedia, The Daily Beast, Ask.com, CityGrid, ASKfm, About.com and Dictionary.com
IAC stock is just about at an all-time high at $132 per share. You can actually sell naked puts way out of the money on this one — sell just one of the 16 Feb $125 naked puts for $2.25, and that will get you to a total of $1,045.
Even better: Not only is this a 1.8% return, or 17% annualized, but you have a full $7 downside buffer before this potentially even executes.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns shares of DIS. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at [email protected].