The post-election landscape has been a tale of two tapes. Some areas like financials, small caps and steel stocks have been bought with abandon. Others, like tech stocks, have been jettisoned from portfolios left and right.
This is rotation at its finest, institutions shifting mountains of money in response to new political realities.
While the Financial Select Sector SPDR Fund (NYSEARCA:XLF) has climbed a sumptuous 10%, the Technology Select Sector SPDR (NYSEARCA:XLK) has tumbled 3%.
Though the relative strength crowd is justifiably steering clear of tech stocks right now, longer-term investors should view the tech tumble opportunistically. Rather than sallying forth and scooping up shares today, you can use the options market to lock in the right to buy some of the biggest and best tech stocks at an even greater discount.
We’re talking about the naked put. It’s a delightful little strategy that allows you to get paid for a promise. Scoring income for obligating yourself to buy a stock you wanted to purchase anyway is what I call a win-win.
Behold, three naked puts for income on beaten-down tech stocks.
Naked Puts on Tech Stocks: Apple (AAPL)
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Apple Inc. (NASDAQ:AAPL) shares have been on the ropes ever since last month’s earnings announcement. The post-election rotation out of all things technology is simply exacerbating the slide. With AAPL stock tagging $105, we’ve now seen an 11.5% correction from its recent peak.
A number of potential support levels loom beneath Apple’s current perch. The $102.50 zone is home to a monster unfilled gap. Then there’s the $100 level, which provided heavy resistance on the way up and is now acting as support. Finally, there’s the $97 zone, which would fill the aforementioned gap.
Apple lovers in search income should consider selling the Dec $95 put for 75 cents. The naked put play obligates you to buy 100 shares of AAPL stock at an effective purchase price of $94.25. If the stock remains above $95, you simply collect the 75 cents of income (per share).
Naked Puts on Tech Stocks: Netflix (NFLX)
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The post-election tech wreck has delivered a very attractive pullback to Netflix, Inc. (NASDAQ:NFLX) shares. NFLX was one of the best-looking tech stocks following an earnings season where virtually every Big Tech stock dropped after disappointing the Street.
Despite the recent profit-taking, NFLX stock remains in a healthy uptrend above a rising 50-day moving average. I think the stock’s a steal if you can get it back around the century mark.
Sell the Dec $100 put for $1.30. The naked put obligates you to buy 100 shares of NFLX stock at an effective purchase price of $98.70. At that price you’re getting a 24% discount off of the October peak. If the stock doesn’t drop below $100 you get to pocket the $1.30 (per share) for your efforts.
Naked Puts on Tech Stocks: Facebook (FB)
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Facebook Inc (NASDAQ:FB) stock was slammed on earnings. And, really, the liquidation hasn’t let up. FB stock hasn’t been this far below its 200-day moving average since its bull market began in mid-2013.
If you think the long-term support breach spells doom then, by all means, steer clear of today’s trade idea.
If you’ve been itching to get your hands on some Facebook stock near the century mark, however, then step right up and sell the Dec $100 puts.
You can sell them now for around 60 cents, but you might considering waiting until you can get around $1.00. All we need is another down day or two.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
