As I write this, the markets are just opening. Early results suggest investors liked what they saw from this morning’s jobs report. All the major indexes are up at least 0.60%. We’ll see if it lasts or not.
U.S. employers added 254,000 jobs in September, considerably higher than the 159,000 in August. As a result of last month’s job creation, the unemployment rate dropped by 10 basis points to 4.1%, according to the Labor Department.
For some reason, selling cash-secured puts was on my mind this morning as I considered topics for today's commentary. Somewhere, I’ve read that the ideal DTEs (days to expiration) for this type of strategy—you want to own the stock but at a lower price—are between 30 and 45 days.
I don’t know if you can take that to the bank, but I’m rolling with it anyway.
There are four Fridays between Nov. 1 (29-day DTE) and Thanksgiving Day on Thursday, Nov. 28. Based on puts with a Vol/OI ratio of 1.24 or higher, there are seven puts available for Nov. 1 expiry, six for Nov. 8, 47 on Nov. 15, and none for Nov. 22.
The goal is to sell three cash-secured puts expiring on Nov. 15 (44 days) that I want to own but at a lower price than where it currently trades. Here are my choices.
Have an excellent weekend!
Wells Fargo
Wells Fargo (WFC) is the first of three cash-secured puts to sell.
The news that it may finally put its fake accounts scandal behind it and have the asset cap removed by U.S. banking regulators has helped the stock gain nearly 45% in the past year. It now sits in positive territory on its five-year return.
Barons reported on October 1 that the bank submitted a third-party analysis of its overhaul of risk and control processes to the Federal Reserve that could see the asset cap removed in 2025.
“Since the cap was put in place in February 2018, Wells Fargo stock is down 12%, while Bank of America has risen 25% and JPMorgan has gained 85%,” Barron’s reported.
Assuming arguments about the bank stock’s valuation being considerably undervalued at “11 times this year’s expected earnings of $5.11 a share, 1.4 times tangible book value, and a 2.9% yield,” according to Barron’s contributor Andrew Bary, it might seem like tempting fate by selling puts when the news suggests its share price will probably move higher in the next month and a half.
Should the asset cap come off in 2025, WFC has the potential to grow its earnings significantly next year and in 2026. Based on analysts’ 2026 EPS estimate of $6.47, WFC stock trades at 8.8x this estimate.
Yesterday, the bid price on the Nov. 15 $47.50 put was $0.51, an annualized return of 7.7%. It’s not high, but you don’t want it to be. You want the opportunity to buy the stock at a net price of around $47.
Church & Dwight
Once upon a time, Church & Dwight (CHD) was one of my favorite stocks.
The maker of well-known brands such as Arm & Hammer, OxiClean, Trojan, L’il Critters, Waterpik, and many others had an enviable record of consecutive years of share price gains.
In August 2018, I wrote the following about Church & Dwight:
“Up 10.8% year to date, CHD hasn’t had a losing year over the past decade with seven out of ten producing double-digit returns outperforming the S&P 500 by 406 basis points on an annualized basis.”
Since then, it’s been a much different story. Its five-year annualized total return through Oct. 3 is 7.23%, less than half the SPDR S&P 500 ETF Trust (SPY) return. Its stock is up 6.4% in 2024.
Like WFC earlier, you might wonder why I would pick CHD to sell puts on.
Despite the lack of returns in the near and mid-term, Church & Dwight’s all-time high is $110.31, hit in June, so it’s not exactly trading at the bottom.
Given its generating organic growth from all three of its businesses: Consumer Domestic (Q2 2024 organic sales up 3.8%), Consumer International (up 9.3%), and Specialty Products (up 3.9%), I believe it's a long-term buy.
In 2024, it expects to generate $900 million in free cash flow, up 11% from 2023. Its enterprise value of $26.53 billion is 19.4x its EBITDA, slightly lower than its five-year average of 20.5x. However, its earnings yield (the P/E inverted) is 3.20%, higher than its five-year average of 2.94%.
There’s nothing that screams undervalued or overvalued at this point.
The $1.20 bid price on the $95 strike yields an annualized return of 10.0%. While income is not the strategy here, if you sell the put and it stays put, it’s a better return than the 3.64% yield on a 5-year Treasury note.
It’s also possible that it could correct, and you’d be able to buy 100 shares for $93.80, nearly 7% lower than where they’re currently trading.
Autodesk
I won’t spend too much time on this last one. I picked it because my wife owns a small construction company, so I follow construction-related stocks like Autodesk (ADSK). Autodesk makes software for several industries, including architecture, engineering, and construction.
Like many software stocks, 2021 was a perfect time to be in business. ADSK stock hit an all-time high of $344.39 in August 2021. By June 2022, it had dropped by 53% to $163.20. In the 28 months since, it’s regained about $105 in share price.
In Q2 2025, it had 13% year-over-year revenue growth, excluding currency, with growth from all its geographic regions and revenue growth from all four product families. Its largest revenue generator—AEC or Architecture, Engineering, and Construction—had 14% YOY growth to $713 million (47% of $1.51 billion overall).
In 2025, it expects free cash flow of $1.48 billion at the midpoint of its guidance and revenue of $6.11 billion, for a healthy 24.2% free cash flow margin.
Analysts are generally okay with it.
Twenty-nine analysts cover it. Of those, 17 rate it a Buy (58.6%, above the S&P average of 54%), with a target price of $299.50, higher than where it’s currently trading.
I view it as an excellent long-term buy.
As for the put to sell, I initially liked the $250 strike, but given the Barchart Technical Opinion is a Strong Buy in the near term, I’d go with the $260 strike. The bid price of $5.80 is an annualized return of 18.3% and a net cost of $254.20.
That’s a good entry point.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
