With earnings season for blue-chip stocks pretty much done, now is a fine time to milk some extra income from some of the so-called blue-chip stocks using naked puts. When I refer to blue-chip stocks, I mean stocks that are solid long-term plays that you intend to hold until you are old and grey. Or blue.
These stocks should be your go-to babies over the long term, so that one year or even three years of bad news won’t change the future for these big names.
I like to sell naked puts with these blue-chips stocks. You collect a premium for selling the right to have them put to you. If that happens, you can always sell them later. If they aren’t put to you, you collect money from the premium.
Let’s look at three blue-chip stocks that you can sell naked puts against.
Naked Puts to Sell: Disney (DIS)
I think you have to own Walt Disney Co (NYSE:DIS), no matter what kind of time frame you have mind. It is the premier entertainment company. With the recent pullback over fears that its merger deal could see problems, it’s already at a decent price, and you can grab some cash here and maybe get it at a lower price.
DIS stock closed Wednesday at $103.16.
Hey, this is good news for long-term holders. The 29 Mar $103 naked puts are selling for $1.92, or a 1.9% return for a 29-day holding period. That’s about 23% annualized.
You also get a 16-cent buffer zone for DIS stock before it triggers the strike price.
Naked Puts to Sell: Caterpillar (CAT)
Caterpillar Inc. (NYSE:CAT) has been enjoying an improving economy, and when President Donald Trump took office, CAT stock took off. There has been a lot of optimism in the manufacturing and machinery sectors given Trump’s promises that are now paying off. The manufacturing index is heading higher and that bodes well.
CAT stock is just off its all time high of $173, and is trading at $154.63. It picked up about $1.2 billion in earnings in the last quarter, its cash flow remains strong, and therefore its dividend is well-covered.
In this case, I kind of like the 6 Apr $152.50 naked puts. These are selling for $4.25, so each contract nets you $425, or a 2.8% return. For the 35-day holding period, that annualizes out to 29%.
Naked Puts to Sell: Boeing (BA)
Boeing Co (NYSE:BA) has been on fire for quite some time. It’s a great company, and because there just aren’t that many airplane manufacturers, BA is always going to have a lot of demand for that piece of its business.
Of course, it is also a defense contractor, and part of an oligopoly in that regard, so it has a wide moat around that business as well.
BA stock hit an all-time high recently, and right now is just below that number, closing Wednesday at $362.21. You have a few choices here, but I think the play is the 6 Apr $362.50 naked puts. You lose 29 cents in capital per share but pick up $8.35, for a net gain of $8.06 per share.
That means you earn 2.25% on the deal, and that comes out to about 23% annualized.
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 does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
