Selling options is an ideal strategy for creating an extra “weekly paycheck” every Friday!
First, by selling a weekly put option you act like the “house” in a casino. As the option seller, you collect a cash premium up front from the buyer who takes the risk and you let option time decay work in your favor.
Second, if you sell a weekly option on Wednesday at noon that expires on Friday, your trade is only open for 19 trading hours (2 ½ days)… which is less time for the stock to move against your position.
Third, your capital is working for you during those 19 hours but is only exposed for a short time… allowing you the flexibility if you want to change strategies the next week.
Fourth, you pay only one commission. If your goal is to have your put position expire worthless on Friday, there is no commission to close the trade.
And last, there are a number of stocks with weekly options where you can get into a position without using all of your capital: Square Inc. (SQ), Lululemon (LULU), Gilead Sciences (GILD), General Motors (GM), Cheniere Energy (LNG), and many more.
And, if you own a stock in your account you never trade, you can sell weekly calls against those core assets and increase the real amount of capital you are using to create that extra paycheck
I like selling weekly options as part of any income strategy because as you can clearly see risks for the returns are minimized in a weekly options income strategy.
And this strategy, using simple tools, simple positions, can be repeated every week, over and over again exploiting one or a handful of ideas to put cash in your pocket.
So what looks good right now?
Here are 5 stocks to cash-in selling options for an extra weekly paycheck:
Collect big cash in mobile payments
Mobile payments is one of the biggest trends for investors to capitalize on starting now.
And digital payments processor Square Inc. (NYSE: SQ) is my hands-down favorite company in this space.
When selecting a stock to trade, I look for a market leader with the following benefits:
- A compelling business model
- Above-average growth
- A strong, identifiable brand
- Superior management.
Square checks all these boxes.
It is a high-growth company and a high-beta (read: volatility) stock. This combination gives us the opportunity to sell well-out-of-the-money puts for excellent premiums.
“Atheleisure” wear boosts this company’s cash income
Unless you’ve been living under a rock for the past few years, you are no doubt familiar with the popularity of “athleisure” wear.
Chances are you, or other members of your household, own items that fall into this category of clothing designed to be worn for exercise or lounging.
Lululemon (NASDAQ: LULU), one of the original “athleisure” brands famous for its high-end yoga gear, now offers a wide range of products including pants, tees, tanks, outerwear and backpacks — for women and yes… men.
And the stock has been a champ when it comes to selling options to capture rich premiums and cash income.
We traded LULU four times since the market began to crater last October…and every trade came up a winner.
The miracle drug stock
Up came Gilead Sciences (NASDAQ: GILD) … the “Miracle” drug stock.
Today I consider Gilead to be the best-managed biopharmaceutical company in the world.
It is the leader in treatments for HIV and hepatitis C (HVC), but sales of these massively successful drug franchises have struggled in 2018 due to competition, rationing of the drugs by insurance companies and, in the case of HVC drugs, a smaller patient pool due to their high cure rate.
And that slowdown in growth has hit the stock over the last two years.
Finally, the stock is trading in the mid 60’s and even with today’s against-the-grain sell-off, shares have held that level.
I see GILD climbing into the $75-$85 trading range in the coming year. That makes it a great company to own shares of stock and sell covered calls against.
GM Stock…I Love It!
General Motors (NYSE: GM) has been in the news lately … which is a good thing for investors selling options.
The market is rewarding stocks with real growth, such as the automakers. That is not a joke. I visited the GM Flint Michigan Assembly plant where they put together pickup trucks and they are running three shifts and maxed out of capacity.
You can collect nice premium from both General Motors these days. I am biased towards GM (I have been driving Chevys – Tahoe, Suburban, Blazer, Blazer, Tahoe and a Traverse – seemingly forever).
The stock is around $37 and it has very fat premiums on the weekly options.
Collect MORE cash from natural gas
Cheniere (NYSE: LNG) is one of the only licensed liquified natural gas exporters in the U.S. and this situation will not change for many years due to the licensing and construct obstacles facing any potential competitors. The company buys cheap natural gas in the U.S. (and it will be cheap for a generation or two due to fracking) and sells it gas short in Europe and Asia. Business is great and their export facility, the Sabine Pass, still has more capacity coming on line in 2019.
This past Monday we sold the LNG Weekly 67.50 Put option for $0.50 or $150 for our 3 contract trade expiring in 4 days.
The stock ran up during the week, so on Thursday we took profits early and cashed out of the trade for $0.45 or $135 of profit. Nothing wrong with taking profits “early” in this turbulent market.
That’s almost a 1% return in 3 days … do that 50 times a year and you have a 50% return on capital from this one stock. I’m looking for more trading opportunities to collect weekly cash selling options into the natural gas and energy sector.
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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.
Most importantly, since 2010, he has dedicated himself to teaching income investors how to get more income from their portfolios using simple yet safe options selling strategies which produce income every week. This approach was developed from the ground up in Mr. Shulman’s own accounts, his goal to develop a strategy that cannot be replicated by institutional investors of any size and therefore independent of fads and trends that change too often to provide a consistent approach for individual traders.