With less than an hour left in Friday morning trading, as I write this, investors appear satisfied with leaving their trading until next week. And why not? The S&P 500 looks set to deliver its eighth winning week out of the last 10.
It’s been an interesting year in the markets, with a few stocks generating much of the year-to-date returns. According to the Associated Press’s Stan Choe, the “Magnificent Seven,” which includes Apple (AAPL) and Microsoft (MSFT), trade for 44 times their trailing 12-month earnings. At the same time, the other 496 stocks have a more reasonable multiple of 17x earnings.
Whatever you think of the markets, my goal today is to find three put options to sell -- not one of the Magnificent Seven -- to generate some quick income for readers on a Friday.
Have a great weekend, everybody.
Let’s Get Sirius
First, I’ve got Sirius XM Holdings (SIRI), the satellite radio people. As I write this, SIRI has the first and second positions for unusually active puts. The July 28 $8 put has a volume of 3,092, 21.77x open interest, while the Aug. 18 $6 put has a Vol/OI ratio of 16.8x.
The markets are an amazing thing. You turn your head for a split second, and boom, a stock takes off. That’s what happened to SIRI. It’s up 91% in the past month. In May, I wrote about Sirius XM for another publication, stating its share price hadn’t been this low in years, so it looked like a good buy for risky investors. It’s doubled in a little more than two months.
As I said, you turn your head briefly, and all hell breaks loose.
So, what did I miss?
Yesterday, short sellers faced a big squeeze. According to Morningstar.com, this whole business of Liberty Media creating a tracking stock for Atlanta Braves-related assets caused trading to get a little crazy. Long story short, SIRI stock jumped 42% on Thursday due to the theory that the historical 30% discount that SIRI stock traded relative to its net asset value would shrink as a result of all this tracking stock nonsense.
I don’t know what to make of it; all I know is Morningstar has a $7.50 fair value for SIRI. Thanks to yesterday’s jump, it’s getting close to that.
Historically, SIRI stock has traded for less than $8 since 2001.
As a result, I like the Aug. 18 $6 put better. Its bid is $0.80 with 28 days to expiration. If you sell it and it doesn’t fall to $6 in the four weeks, you pocket $80 or an annualized yield of 365% ($0.80 divided by $7.01 multiplied by 365 divided by 28).
If it does fall to $6 or lower, it only starts to hurt at $5.20.
Upstart’s Alright?
If you had never heard of Upstart (UPST) and I told you its share price was up 318% in 2023, you would swear it was a biotech darling. Fintech stocks don’t move that much, do they? Of course, the other side of this coin is that UPST is down 85% from its Oct. 15, 2021, all-time high of $351.
With artificial intelligence (AI) such a big deal these days, you would think the company’s AI-powered lending software would be popular with banks and other financial businesses that make auto and personal loans -- its software is said to analyze creditworthiness more thoroughly than the FICO score does -- but rising interest rates have sucked the life out of demand.
There’s no question that the company’s first-quarter results left much to be desired, with revenues falling 67% to $103 million, with a $132 million operating loss, $167 million worse than a year ago. Even its contribution profit, a liberally applied non-GAAP measure, was down 54% year-over-year.
It does expect business in the second quarter to be slightly better. And you can’t ignore that it’s adding customers at a decent clip. While AI seems less successful for home buying, I think there is some merit to using the technology for credit risk assessment.
While the jury’s still out, the July 28 $49.50 put looks like an interesting play. Currently trading about $4 above its strike price with seven days to expiration, the $1.86 bid provides an annualized yield of 183%.
Worst case scenario: you must buy the shares at a net price of $47,64. If you believe it can revisit its 2021 all-time high, the put option’s a no-brainer.
Renewable Energy Rocks
My final put option is the June 21/2024 $77.50 put for NextEra Energy (NEE) with a $6.10 bid price.
NextEra is a utility that delivers a one-two punch. It’s got a traditional utility in Florida Power & Light, which happens to be America’s largest utility. Still, it also has NextEra Energy Resources, the world’s largest generator of renewable energy from the sun and wind.
NextEra possesses the least risk for the average investor of the three stocks.
Over the past 15 years, the utility has grown its adjusted earnings per share by 8.3% annually. Over this period, its total shareholder return was 669%, considerably higher than the 255% and 191% returns for the S&P 500 and S&P 500 Utilities, respectively.
I wouldn’t have a problem recommending this stock to close friends or associates.
As for the put, it has 336 days to expiration, so a year. The annualized yield is slightly more than 8%. While it’s currently trading below the strike -- and would be put to you if today was the expiry -- the $71.40 net price you would pay would be a good entry point.
However, given utility stocks haven’t performed well in 2023, my guess is that NEE is about to go on a run, and you’ll left with the income and no shares.
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.
