It’s Friday. The weekend is nearly upon us. TGIF!
The S&P 500 sought its seventh consecutive day of gains entering Friday trading. Late in the morning, as I write this, the index is down 0.11%, which suggests the streak could end today.
The good news is that the index had its best week of trading since November. That helped erase the significant losses from the correction at the beginning of August. The bad news is that the markets are down on news housing starts and building permits in July were down more than expected to four-year lows.
I don’t think investors should read the housing news as a sign of a weaker economy. However, the volatility could ratchet back up if the Federal Reserve doesn’t cut interest rates by at least 0.25% when it meets Sept. 17-18.
With that in mind and back to school happening, I thought I’d look for three stocks to sell put options for that will generate x$ in income by the end of August, helping readers pay for some of the expenses in the upcoming school year.
Have an excellent weekend!
Netflix
Netflix (NFLX) continues to go upscale by eliminating its cheaper streaming plans. In July, it announced that it would end its cheapest ad-free plan in the U.S., which cost $11.99 monthly. It already did so in Canada and the UK at the beginning of 2024.
So, if you want ad-free, you must pay $15.49 monthly or $22.99 for its premium plan. Netflix seeks the right balance between ad-free and ad-supported to generate the highest profits while maintaining the user experience.
It's Business 101. And it’s working.
Jefferies lead analyst James Heaney discussed the opportunity in Netflix stock after the three-day correction in early August.
“We are increasingly bullish on the recent 10%+ pullback in the stock, as we believe a Q4 US price hike is possible on the back of an impressive content slate,” Yahoo Finance reported Heaney’s comments on Aug. 5.
“We expect NFLX to accelerate subscriber growth in Q4 leading us to +7.45 million net adds (vs +3.75 million in Q3) and ahead of consensus estimates of +7.2 million.”
As far as I can tell, its business looks exceptionally strong and getting stronger.
Here is the Netflix put from yesterday’s options trading that looks enticing.
While the Vol/OI ratio wasn’t massive at 2.04, it still generated a volume of 1,341, which is decent, if not spectacular.
As I write this, NFLX stock is up 1.5% on the day. The $7.75 bid price is now $3.70, which is not nearly as attractive but still worth considering.
Based on the current share price of $674.53, it has an annualized return of 28.7%. The net price paid should the shares be put to you at expiry next Friday is $656.30, 2.7% lower than where it’s currently trading.
That’s not a large margin of safety. However, the Barchart Technical Opinion is a Strong Buy with an 88% Buy rating, suggesting the odds are good it will continue higher in the days ahead.
Meta Platforms
While Netflix is up, Meta Platforms (META) is down about 1.7% in late-morning trading. META stock is having an excellent year, up over 52% year-to-date.
I’ve followed Canadian portfolio manager John Zechner for over two decades. He recently appeared on BNN Bloomberg TV to discuss why he likes Meta Platforms stock.
“The hyperscalers are better positioned to roll out these services profitably. Meta showed that in the last quarter. A couple of things for Meta. Directed advertising. They lead in online mobile advertising. That you can effectively direct using AI. And the other thing is just bundling it with its other apps and selling it down to the customer… And you’re getting all of that for a market multiple,” Zechner stated on Aug. 13.
As Zechner said, it’s hard to beat paying a reasonable price for a company that owns 18% of the digital advertising market. In Q2 2024, its revenues grew 22% to $39.1 billion, while income was 73% higher than in Q2 2023 at $13.5 billion.
Keeping a lid on expenses will help it generate greater free cash flow -- nearly $50 billion in the trailing 12 months through June -- which it will invest in its AI initiatives moving forward.
There’s a reason 40 out of 45 analysts rate it a Buy (4.67 out of 5) with a $570.83 target price.
As for the put options to sell, I like the Aug. 23 $530 strike.
The annualized return on the $5.10 bid price is $43.3%. I don’t see its share price falling to $524.90, but there are no guarantees.
As I write this, the last bid price was $9.10, and its share price is in the money, trading at $529.58. The annualized return has jumped to 88.6%. The net price you would pay should you have to buy the shares is $520.90. With a week to go, this looks like an interesting income play.
Selling the two puts could generate $1,280 in income over a one-week bet. Of course, it’s important to remember that you might have to buy the 100 shares, so it’s best to ensure you have the cash in your brokerage account just in case.
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.
