September Puts Options Trades Update #1
Small and large dividend stock and ETF investors can use covered calls and puts trades to generate monthly income from options premiums and options trading.
By Donald E. L. Johnson
Cautious Speculator
Seven August cash secured puts trades could yield 14.8% in options premiums.
Energy and health care sectors were the leaders over the last month.
But it is too soon to sell puts on dividend stocks like Exxon Mobil and Chevron.
During the last month, the S&P 500 SPDR (SPY) fell 3.3% cutting its three-months gains to 5.2% and its 52-week gains to 9%.
The S&P 500 Energy Sector SPDR (XLE) during the last month gained 2.19%, bringing its three-months gain to 11.4% and its 52-weeks gain to 5.9%.
There is a good chance that stocks will sink during the next few week. That increases the risk that these puts will be assigned if the equities prices fall below their strike prices. That is why it is important for traders to be sure that they want to own the equities in the September puts portfolio or are ready to take losses on the trades if they don’t want to own the stocks or ETF.
The top seven one-month performers are shown above. This is why I’m heavier in energy and health care stocks and ETFs cash secured puts than in others. I look for bullish momentum regardless of what the markets doing, but there are times that I do some bottom fishing and sell puts on stocks and ETFs with Barchart.com sell ratings. Naked and covered puts trades are bullish because the seller contracts to buy the equities if they close lower than their strike prices on the last day of trading the puts options.
At this point, I’ve done seven cash secured puts trades on six stocks and XLE. The problem is that Exxon Mobil Corp. has a weak 8% sell rating. And another good dividend stock, Chevron has a 40% sell rating. So I will wait until they rally before selling puts on them. I own XOM and have sold September 8 expiration $112 strike covered calls on it.
I also was considering selling Merck & Co. (MRK) 9.29.23 $107 puts after having it called at $108 a share on Friday. But it has a 64% sell rating. So I’ll wait on that one, too.
Last week I did five more puts options sales that will expire in September.
When Danaher Corp. (DHR) was at $255.30, I sold DHR 9.15.23 expiration (21 days) $242.50 strike puts (5% margin of safety or breakeven) for $1.25 per share. If uncalled, the return on risk will be .49%, or 8.51% annualized. DHR pays a small dividend. The delta was -.16, which means that there is a 16% probability that DHR will be assigned. The probability that the stock will be out of the money with the option expires is 82.8% and the implied volatility was 22.4%.
DHR has a strong buy average analysts’ rating of 4.58 out of a possible 5. The highest target price is $325, the mean TP is $288.33 and the low TP is $240.
Kraft Heinz Co. (KHC) was at $33.95 when I sold KHC 9.15.23 33 puts for $0.23. The RoR is 0.677% and the ARoR is 16.66%. KHC pays a 4.88% dividend. The MOS was only 2.3%. The delta was -.25, the OTM was 73.2% and the IV was 18.88%. The average analyst rating is a moderate buy, or 3.71%. The high target price is $48, the mean is $41.92 and the low is $38. I own KHC and would like to buy more shares at the strike price.
Moderna Inc. (MRNA) was at $115.71 when I sold MRNA 9.15.23 $102 puts for $1.18 per share, or $118 per 100-share puts options contract. The RoR is 1.02% and the ARoR is 15.1% if I can do the same 21-day trade 24 times in the next 52 weeks. MRNA doesn’t pay a dividend. The MOS is 11.9%. The delta is -.15, OTM is 82.4% and the IV is a pretty high and risky 52.2%. The average analysts’ rating is 3.69, or a moderate buy. The high target price is $430, the mean is $180.27 and the low is $68. In other words, the target prices are very diverse. People are very uncertain about the demand for the next covid vaccine, which is scheduled to be released in a couple of weeks.
Newmont Mining Corp. (NEM) was at $38.47 when I sold NEM 9.15.23 $320 puts for $0.20 a share. The RoR is 0.52% and the ARoR is 7.9%. NEM pays a 4.598% dividend on the net debit price of $34.80. The delta is -.12, the OTM probability is 83.3% and the IV is 26.8%. Analysts rate NEM a moderate buy, or 4.31. The high TP is $68.08, the mean is $56.87 and the low is $39. At the moment NEM is trading for $39.05.
XLE was at $87.85 when I sold XLE 9.15.23 $83 strike puts for $0.40 per share. The RoR is 0.455% and the ARoR is 7.9%. XLE pays a 3.4.2% dividend. The MOS is 5.53%. Delta is -.16. OTM probability is 82.9%. IV is 27.11%.
The seven puts trades average a 14.8% ARoR. The average MOS is 7.951%. I’d like it better if the MOS was 10% or higher in this market. The average IV is a nice 32.3%, but the average is distorted by the 49% IV on the Generac Holding Inc. (GNRC) trade and MRNA’s 52.2% IV.
Between my weekly portfolio updates, I report my thoughts and trades in the comments section of this and other posts.
I respond to comments on the comments section where readers’ comments are posted. That is, if you have a question about this article or other comments, I'll discuss your questions with you in the comments section below this article.
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You sell put's when IV is low ?!?!
I sell put's when IV is high, thus i get good premiums
and always use a delta of 25 to 29, anything under this is
often useless since premiums are minuscule.
Then i only take on trades when i expect IV to drop after placing my trade
and thus stabilize the stock price in a range that's profitable for me,
and i place contingency orders is many cases...
9.1.23. DG is down sharply on lousy earnings and guidance. It's a great company that will bounce back next year. So I did some bottom fishing. I sold DG 9.29.23 expiration (28 days) $125 strike puts (delta -.27) for the ask price of $1.50 when the option was $1.40 bid, $1.50 ask. OTM probability was 70.8% and implied volatility was 26.4%. Wall Street analysts are lowering their target prices to $135 to $181. Before all 21 analysts could adjust their target prices, the high TP was $270, mean was $189.93 and low was $150. For me, this is a speculative income trade and a longer term speculative trade on a company that I expect to bounce back. On my possible $123.50 net debit, the dividend yield is 1.9%.