Tensions in the Middle East and the dimming prospects of interest rate cuts have combined to create a risk-averse environment, causing investors to flee from growth-oriented stocks like AI companies. This pullback is evident in the S&P 500’s six-day losing streak, culminating in a close below 5,000 on Friday for the first time in two months. This stretch marks the longest decline for the index since the year began.
However, amidst this market turbulence, there are still opportunities to be found. Options Income Weekly members continue to generate consistent income.
Over the past two weeks, members have successfully closed out six options trades, collectively bringing in $352 in cash and averaging a 1% return per trade with a holding time of less than two weeks.
One interesting trend within our recent trades is the reemergence of stocks that haven’t been featured in the Options Income Weekly program for some time. This includes mobile payments company Block (SQ) and Delta Air Lines (DAL).
Block, formerly known as Square, was once a staple in the program. We enjoyed consistent success trading this stock throughout the past few years, beginning in 2018. However, this recent trade marked our first foray into SQ in over a year.
In the case of Delta Air Lines (DAL), we hadn’t explored trading opportunities with this airline company in the Options Income Weekly program since late 2022. Our decision to revisit DAL was prompted by the company’s robust first-quarter earnings report released on April 10.
The report boasted record sales figures and surpassed analyst expectations on earnings. Furthermore, Delta’s management expressed optimism regarding both leisure and business travel bookings, offering positive guidance.
However, a look at the chart below shows what a bumpy ride DAL has been on. Macroeconomic concerns, labor negotiations with unions and rising fuel prices have all contributed to volatility in shares over the past 18 months.
Despite these headwinds, we saw an opportunity in DAL due to the strong earnings performance and the company’s optimistic outlook.
With the stock trading at $45.84, we opted to sell a DAL 17 May 42 Put for $0.51, or $51 per contract. We executed two contracts in the live account, netting total premium of $102.
We strategically crafted this trade with a conservative approach, acknowledging the short-term challenges facing the broader market.
First, we selected a May monthly expiration, granting us 31 days to manage the trade if needed. Second, our chosen strike price of $42 was more than 8% out of the money (OTM), providing a comfortable buffer in case DAL’s price dipped.
Finally, we established a target exit price of $0.20 and placed a good ‘til canceled (GTC) order to buy back the option at this price. This strategy aimed to capture 60% of the maximum profit, which is lower than our usual target but prudent given the market climate.
The market’s struggles notwithstanding, DAL’s share price climbed over the next few days, and our put hit its target exit price within a mere 48 hours of initiating the trade. We secured a profit of $62 for the two contracts, translating to a 0.7% return on investment.
This trade serves as a great example of how options traders can capitalize on post-earnings opportunities, even with a cautious approach.
As earnings season ramps up in the coming weeks, we will be diligently searching for similar setups within the Options Income Weekly program, aiming to provide our members with consistent income generation regardless of market conditions.
