9 Cash Secured Puts Trades On 'Recession-Proof Dividend Stocks

Selling puts is a bullish stock options trade for income traders.

By Donald E. L. Johnson

Cautious Speculator

• Speculators who want to generate options premium income in this bear market can consider selling cash secured puts, which is a bullish trade.

• 9 dividend stocks that have bullish momentum include PM, KR, CASY, MO, FDP, KO, LANC, MDLZ, SJM.

• Today’s high volatility with the VIX at 34 offers high options prices.

• This allows risk averse traders to trade low delta, deeply out of the money options and make pretty good returns in a few days, weeks or a month.

In this bear market I’m selling cash secured puts instead of buying stocks and selling covered calls. I own a couple of stocks that were put to me and I sell calls on them. I last wrote about my bear market puts strategy here.

My criteria for cash secured puts trades are:

1. Bullish momentum on quality dividend paying stocks.

2. Stocks must be trading over their 50 day moving averages with positive buy ratings from Barchart.com and strong buy indicators from StockCharts.com.

3. Cash money flow must be positive. I use the Chaikin Money Flow as shown in the charts above.

4. I usually trade deltas between .05 and .15 and out of the money probabilities over 80%.

For example, Casy Stores Inc. (CASY) is trading at $453.21, or $45,321 per 100-share options contract.

A trader can sell CASY May 16 expiration (25 days duration) at a $390 strike for about $1.87 a share, or $187 per contract, less commissions and fees. That yields an annualized return on risk of about 6% on the puts premiums and 0.44% dividend yield. To get better yields, take a higher risk of assignment of the puts and trade the puts at a higher strike.

The delta (risk of assignment) on this trade is a fairly low 0.08, or 8%. The probability that the options will expire worthless and out of the money is a very high 91.2. The implied volatility on the trade is a high 43.38%.

I own MO.

Is anyone else trading cash secured puts in this market?

Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.