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Today I’m recommending a naked put write on MSG Networks Inc. (NYSE:MSGN), a content development and distribution and sports production company.
While there have been some exceptions in the past, I think the end of October is a good time to buy stocks. This is usually when the market hits its lows for the year before making a rally into year-end.
I think that will be the case this time as well, although it’s hard to say how big of a rally we might get. But if MSGN follows the market higher, it should close well above our strike price at the Nov. 16th expiration, allowing us to keep the entire premium from the put we are selling.
From a technical perspective, shares of MSGN have not closed below the $23.75 level since August. The stock tested that level as support twice in September, but each time it was able to hold and send the stock higher again. It tested that level again yesterday, but it closed well off of its lows for the day and above the $24 level, which was a positive sign.
If support at $23.75 was to give way, however, there is additional support near $23.25 and at our strike price of $22.50.
I have given the trade some cushion to move below the strike price by setting our stop price at $21.90, but a drop below that level would tell me that the bullish technical outlook for the stock has been negated.
With that in mind, here’s the trade I’m recommending today:
Sell to open the MSGN Nov. 16th $22.50 put at about $0.35.
A naked put write is a bullish position in which you expect the price of the underlying stock to increase.
If you do not want to be “put” the shares, watch for a drop below $21.90 prior to expiration on Nov. 16, 2018. If you are holding the option at expiration and the stock is trading below the $22.50 strike price, you will be put the shares. If you do not want to take possession of shares, exit the trade if MSGN shares drop below $21.90.
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Ken Trester is editor of the popular Maximum Options program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.
