The “holidays” are here.
Parties … shopping for gifts … and lighter trading volumes.
And the stock market continues to climb a “wall of worry” due to news on trade tariff wars, uncertainty over future Fed action and a slowing economy.
When volatility goes up, so do option premiums. This greatly expands the universe of stocks with cash-rich premiums that income traders can take advantage of by selling weekly put and call options.
Here are 3 stocks I like to sell weekly options in the New Year.
While a number of retailers have delivered disappointing results recently, Target (NYSE: TGT) has blown through analysts’ earnings and sales estimates thanks to the performance of new, smaller footprint stores, strong same-store sales growth and big gains in digital sales.
Well-managed big-box stores have survived being “Amazoned” and are now pushing back. Clearly, Target is leading the way. It recently announced a new initiative — its Good & Gather grocery brand — which it expects to be a multibillion-dollar brand by the end of 2020. This move shows management has the guts to spend money to make money.
For a well-managed retailer growing faster than its peers and overall consumer spending, TGT is extraordinarily undervalued. That’s great news investors and options sellers alike.
Because of its strong growth and elevated volatility, you can trade this stock every week with puts can earn you 15% to 38% a year of income.
Everyone is familiar with Microsoft’s (NASDAQ: MSFT) software, and the solid business environment has contributed to the rise in shares over the past year. But the big driver of enthusiasm for the stock is the company’s push into cloud services. The Street likes things that are shiny and new.
Microsoft’s cloud computing service Azure grew revenue 59% in the third quarter of 2018. This number actually disappointed some on Wall Street, as it was lower than the year-ago quarterly growth of 76%.
Overall revenue and profits for this market leader are expected to grow in the double digits, and put premiums are consistently high and can produce returns of 11% to 25% on an annualized basis.
Premiums are rich and the stock has traded in a tight trading range making it perfect for selling weekly options to build up a quick cash stockpile.
Square Inc. (SQ)
Digital payments are the single biggest trend within one of the hottest segments of the market — fintech. And digital payments processer Square Inc. (NASDAQ: SQ) is my hands-down favorite company and stock in this space.
Square’s debut product was a small, white square that can be attached to mobile devices such as smartphones and tablets to process credit and debit card payments from anywhere in the world. In addition to its original magstripe reader, the company now offers readers for chip and contactless mobile payments, which can work even without an internet connection.
But Square has a lot more to offer its business customers than just payment processing, including customer booking, email marketing software, an online payroll service and Square Capital, which makes small-business loans. The combination of these services with Square’s easy-to-use front-end devices and powerful point-of-sale software should continue to translate into rapidly growing market share.
I see the company’s business model as similar to that of one of the most successful companies on the planet — Apple (AAPL). That is, Square hooks people on the simplicity and accessibility of its devices and gets them so immersed in the product and software ecosystem that they never want to leave.
And this brings me to where one of the company’s biggest opportunities lies — Square’s Cash App, a peer-to-peer (P2P) money-transferring service. While PayPal Holdings’ (PYPL) Venmo is a pioneer in P2P payments and the perceived leader in the space, the Cash App has surpassed Venmo in number of downloads. Plus, the Cash App is more than just a P2P payment system. It also offers prepaid debit cards, direct deposits and free in-app stock trading, including the ability to buy fractions of a shares. It even allows users to deposit and trade bitcoin.
Square was an absolute dream for income traders in 2019, and I expect 2020 to be no different. Active traders who sell puts on the stock every week have the chance to make between 52% and 80% a year.
Selling Weekly Options
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About The Author
Michael Shulman is a 30 Year Veteran of the financial markets – as a trader, a financial analyst, a financial writer and most recently as an educator.
Mr. Shulman made his first option trade in 1985 – COMPAQ Computer calls – a position that expired worthless. His second trade broke even; the third brought him a year’s salary, a near twenty to one return on his investment. Michael has never looked back. He entered the financial publishing business formally in 2001 as director of research for ChangeWave Research’s institutional research business and as the writer and editor of Hedge Fund Investing.
He has published two books – Sell Short and Made in America – both of which can be found on Amazon.com and is a frequent contributor to reputable financial sites like Seeking Alpha, MSN, MainStreetInvestor, and Traders Reserve.
His trade recommendations in his Options Income Blueprint, Perpetual Income Portfolio Club and Income Masters services maintain a 98% success ratio, meaning his trades produce the expected income 98% of the time. No one’s perfect.