September Puts Options Trades Update #2

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

• September cash secured puts options premiums are yielding 16.7% annualized.

• I sold puts on DVN, V and VRTX.

• If markets drop next week, I’ll look to sell puts on CSCO, CVX, XOM and WMT,

Eleven cash secured puts options trades on 11 stocks that expire in September will give me options premium income that could amount to about a 16.7% annualized return on risk.

Click on images and zoom in for better views of the data.

I sold puts on three stocks last week and am looking for entry points on at least three others. The three stocks were Vertex Pharmaceuticals (VRTX), Devon Energy Corp. (DVN) and Visa Corp. (V).

When I tried to sell puts on Walmart Inc. (WMT) last week, it ran away from me. I hope to see a dip this week so I can get into this stock at a discount. I’m also looking for opportunities to sell puts on Cisco Systems Inc. (CSCO) and Chevron (CVX) as well as on Exxon Mobil (XOM), which was called from me on Friday. These are stocks that have good balance sheets and safe dividends.

With my VRTX 9.15.23 $220 puts set to expire this week, on Friday I sold VRTX 9.29.23 (21 days) $330 strike puts for $1.65 a share per 100-share options contract. The return on risk was 0.455%. If the same kind of 21-day trade can be done 17 times a year with the same results, the annualized ROR will be about 8.3%. There is no dividend.

On this trade, in addition to the options premium income, the goal is to buy the stock at $330 or less, which is a 4.7% margin of safety (MOS), or discount below VRTX’s $346.16 price at the time of the trade.

I’ve owned and have been in and out of VRTX for a few years selling puts and covered calls on it along the way.

While VRTX has a short-term bearish chart, its outlook is very bullish. On Barchart.com, VRTX is rated a 40%. That is, 40% of 13 analytics are bullish. Analysts rate VRTX a strong buy with a 4.42 rating out of a possible 5.

The highest analyst target price on VRTX is $465, the mean is $$381.92 and the low target price is $315. Valuentum.com’s fair value estimate price is $356. Morningstar.com gives VRTX three stars and its FVE is $314.

I also sold puts on DVN and V and reported those trades in these comments:

9.5.23. I own DVN. Today I sold DVN 9.8.23 expiration $54 strike puts for $0.54 when the stock was at $53.99. I goes ex-dividend at $0.49 a share on 9.14.23. This trade lowered my average price and increased my average dividend yield when and if the puts are assigned. The three day puts trade which I treat as a seven-day trade because I only do something like this on weeklies, provides a return on risk of about 1%, or about 52% annualized. The ARoR estimate assumes I can do this kind of trade and get similar results 52 weeks a year, which is unlikely.

After DVN goes ex-dividend, I'll sell out of the money covered calls so I can reduce the risk of DVN being called before it goes ex-dividend in December. I expect the dividend will be a nice increase in the variable part of the dividend.

Analysts rate DVN a "moderate buy" with a 4.2 out of a possible five rating. The highest target price is $79, the mean target is $60.45 and the low target is $50. Based on the current stock price and fixed dividend, DVN yields about 3.63%.

If DVN closes Friday above $54 (50% chance), I pocket the $0.54 a share and sell 9.15.23 puts or I just buy the stock so I can collect the dividend.

9.7.23. V $245.32. I sold V 9.22.23 (14 days) $232.50 strike puts for $0.49. RoR was 0.2%, 5.2% annualized. Net debit $232.10. Delta -.10, OTM 89.7%, IV 18.24%. With possible UAW strike on auto makers, increasing probability of a rate hike from the Fed and other bearish indicators for the markets, I traded for a 5.2% margin of safety, relatively low RoR and a low risk of having V assigned at the strike. I'd rather buy V at a price below the strike. The 50-day moving average is about $230. On Barchart.com's 13 short term analytics, V was a 100% buy and strengthening.

Analysts rated V a strong buy at 4.68 out of a possible 5. The high target price was $320, the mean was $261 and the low was $88. The Stock Charts.Com Technical Rating (SCTR) is a bullish 70 and the relative strength compared with the S&P 500 is a bullish 60.7. The point and figure (PnF) price objective is $286.24.

VRTX closed Friday at $343.05 and VRTX 9.29.23 $330 puts closed at $2.25.

DVN closed at $52.66 and its 9.8.23 $54 puts were assigned with a $53.46 net debit.

V closed at $247.29 and the V 9.22.23 $232.50 puts options closed at $0.27 a share.

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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.