In Wednesday trading there were 349 put options with unusual options activity -- options expiring after June 29 and with Vol/OI ratios of 1.24 or higher -- and 637 calls.
In today’s commentary, I’m focusing on put options and income. With the July 4 holiday weekend coming up, it would be nice to generate some income to cover your July 4 celebration expenses.
Of the 349 put options, 87 expire between July 19 and July 26. Those are my targets for generating $1,000 in income over the next 30 days. It would be best if you were an aggressive investor used to risk for at least two of them. Govern yourself accordingly.
A Mild Pick
A quality company is critical to making an investment decision to minimize risk, whether buying an actual stock or trying to generate income from selling a naked put.
Of the 12 put options from yesterday’s trading, Microsoft (MSFT) stands out as the “quality” company of the bunch. It has three put options expiring in late July.
As you can see from above, all three are out of the money, with the $435 strike providing the largest premium. On an annualized basis, the $4.05 bid price provides an annualized return of 11.3%, better than most dividend stocks.
With a Vol/OI ratio of 1.63, which isn’t huge, it generated a volume of 1,267 contracts, almost as much as the other two combined.
Worst-case scenario, you must buy the shares at a net price of $430.95. It’s traded above that level for most of the past month.
There is no doubt that Microsoft is a higher-quality stock than Tesla (TSLA), the other possibility.
So, we’re more than 40% of the way to our $1,000 in income.
A Spicier Pick
Ratcheting up the risk a little, I could choose one of the three Tesla puts to sell, but in a contrarian move, I’m going with GameStop (GME), a company I absolutely can’t stand, calling it “a Dog at $15” in early June.
However, I did suggest three unusually active put options to buy, to profit from its inevitable fall from grace: Oct. 18 $22, Jan. 17/2025 $125, and July 5 $10.
The ask prices for the three were $4.85, $90.55, and $0.12, respectively. As I write this early in Thursday trading, the ask prices for each are $4.85, $103.50, and $0.01. So, of the three puts, the big winner so far is Jan. 17/2025, with a current ask of $103.50, 14% higher than in early June.
Getting back to GameStop, the option play, versus GameStop, the company and its loyal fanbase of retail investors provide a theoretical floor to its share price. Since May, it hasn’t traded below $16 but has traded well into the $60s.
Anyway, that reduces the risk of it falling into the teens in the near-term. I still think it’s not worth double digits in the long term, but I digress.
Here are the four puts that were unusually active in Wednesday’s trading.
Three of the four puts had a Vol/OI ratio of 10 or higher. That’s not surprising. Its options are popular, with a 30-day average volume of over 751,000.
Of the four, the July 26 $22 strike has the highest premium. Its closing bid price was $1.92. Based on a closing share price of $24.20, that’s an annualized return of 100% on the dot.
With a net price paid should you have to buy the shares is $20.08. Its share price would have to fall by 17% in the next 29 days to lose money on the trade. With $3 billion in ATM cash raised over the past month, I don’t see that happening.
If you want to ratchet the risk down even more, the July 19 $19.50 put has an annualized return of 63%, which is still good, but it expires a week earlier, and the net price is $19, $1.08 lower.
For the $1,000 in income, I’ll go with the former, which adds another $192, bringing us to within $400 of our target.
Too Hot to Handle?
Last up is Celsius Holdings (CELH), the fast-growing functional drink company that PepsiCo (PEP) distributes and owns 8.5% of. Its shares have taken a beating in the past month, down nearly 32%.
Why? If you can believe it, Evercore analyst Robert Ottenstein said in May that the company’s market share had fallen two basis points in recent weeks to 12.4%. Never mind that the analyst estimate was 80 basis points higher than the company’s estimate.
So, even though it’s still growing at a decent pace, investors are led to believe it’s no longer in hyper-growth mode. If you’ve followed Monster Beverages (MNST) over the years, you’ll know that even the best have periods of reduced growth. It happens. Investors likely have overreacted, but the falling knife, which is CELH stock, makes this bet the riskiest of the three.
It had two unusually active options expiring between July 19 and July 26.
The July 19 $45 put has an annualized return of 13%. The July 26 $55 puts' annualized return is 144%. While it’s tempting to swing for the fences, the $45 strike to sell.
However, my target is $1,000, so let’s go with the $55 strike, which gets us to $864. To get us over the top, let’s sell two GME July 26 $22 puts to get to $1,056.
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.
