Summertime approaches, and that may mean you want to enhance your income a little bit. Did you know there is a way to generate $1,000 or more every single month using option trades known as naked puts?
Brokers do require Level 4 options approval, but you shouldn’t have too much trouble getting that request approved, because most brokers want you to generate trades so they can generate revenue.
What are naked puts? They are contracts in which you sell the right for another investor to “put,” or sell, 100 shares of a given stock to you, at a certain strike price, on or before a certain contract expiration date.
Thus, should the stock be above that strike price on the date of contract expiration, the stock will not be put to you, and you get to keep the premium that you received for selling the contract.
Naked puts are one of the primary strategies for generating additional income in my stock advisory newsletter, The Liberty Portfolio.
You also keep the premium even if the stock is put to you, and the premium will have the effect of lowering the effective price you buy the stock at. That’s why you should choose stocks you actually want to own.
Selling Puts for Monthly Income: Mastercard Inc (MA)
Mastercard Inc (NYSE:MA) is usually a pretty effective stock against which you can sell make inputs. That’s because MA stock usually has enough volatility that it offers fairly generous premiums for naked puts that you can sell 4 to 6 weeks out from expiration.
As part of an oligarchy — there are only a handful of payment processors in the entire world — I think of MasterCard as being a great long-term hold. It also generates a lot of free cash flow every year, has billions of dollars of cash and investments, and isn’t just resting on its laurels as a payment processor.
MasterCard is pushing into as many areas as possible, so that any time you want to pay for something electronically, MasterCard is there.
MA stock closed at $190.63 on Wednesday. I think selling the 8 Jun $190 naked puts for $3.60 is a strong play. You’ll earn $360 per contract, so I would sell one of these for $360 total.
Selling Puts for Monthly Income: Wynn Resorts, Limited (WYNN)
Wynn Resorts, Limited (NASDAQ:WYNN) is undergoing a major change in management. Cofounder Steve Wynn has resigned and sold all of his shares.
Cofounder and ex-wife Elaine Wynn is now the largest shareholder and has effective control over the company. She just put three new women on the Board of Directors, is seeking to block a long time ally of her ex-husband from being reelected to the board.
I think she is getting everything in order so that she can either sell the company, or rebrand it.
In addition, it looks like the Macau market is back in action, as the Chinese government crackdown on wealthy corrupt people has wound down.
All this points to a stock that I think will go higher. You could certainly go along, or you could hedge your bets by selling naked puts.
WYNN stock closed at $199.21 on Wednesday. If you sell the 8 June $195 naked puts for $4.80, you’ll pick up $480, and bring your total to $840. You’ll also have a $4.21 buffer before you even hit the strike price.
Selling Puts for Monthly Income: Walt Disney Co (DIS)
Walt Disney Co (NYSE:DIS) is in the midst of some interesting transitions. Its core business is doing very well. We have a new “Star Wars” film coming up, a sequel to The Incredibles, the monster hit Avengers: Infinity War, And countless other films on the way.
Parks and resorts continue to do very well. Disney will be rolling out its streaming service next year, even as it starts to build out its ESPN+ streaming service.
CEO Bob Iger is doing a terrific job stirring the company, and I think Disney is actually undervalued at present. Once again, it’s a terrific company to own for the long term, and you could certainly go long the stock. Alternatively, you can hedge your bets by selling some naked puts.
DIS stock closed Wednesday at $100. If you sell the 8 Jun $100 naked puts for $2.30, you’ll pick up $230, and bring your total to $1,070.
You can sell naked puts along with me over at The Liberty Portfolio.
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.