7 Puts sales possibilities on bullish stocks

  • The time spent waiting for a big announcement from the Fed can be used to put together a watchlist of stocks that you might trade after the markets absorb the news.
  • Selling puts on strong, bullish stocks is a good options trading strategy.
  • Barchart.com buy signals range from the weak 8% to the strong 100%. The more buy signals there are for an equity, the higher the buy rating.

After the Fed announces whether it is raising the Federal Funds rate a quarter or half point this afternoon, options traders might consider selling puts options on one of these six stocks and the Nasdaq QQQ (@QQQ).

Selling puts on stocks and ETFs that you want to own at a lower, or discounted price, is a bullish trade.

They all have buy ratings at Barchart.com, and all but Dow Chemical (@DOW) are showing bullish breakouts on point & figure charts. My DOW 3.31.23 $53 puts look like they may be assigned, and I may sell more DOW puts.

In addition to DOW ($52.53), which I’m looking to buy for my dividend stock portfolio, the stocks are: Apple Inc. (@AAPL), Hershey Foods Corp. (@HSY), Morgan Stanley (@MS), Microsoft Corp. (@MSFT), Nvidia Corp. (@NVDA) and QQQ.

For example, an income trader who wants to speculate on AAPL ($159.46) might sell one AAPL 4.21.23 $155 strike (delta -.33, OTM probability 64%) 100-share puts option for about $2.79 a share. The annual return on risk (ARoR) would be about 20%.

Or a trader might sell deep out of the money NVDA ($269.26) puts. Say, sell one NVDA 4.21.23 $235 strike (delta -.17, OTM probability 79%) puts for about $4.03. The ARoR would be about 17.7%.

The strike is the price that you contract to buy the equity for if the stock expires at a price below the puts strike. Each investor has to decide at what price or strike she is interested in buying the equity. If a stock is about to be put, or sold to the trader, she always can buy the puts back at a profit or loss, depending. Or if a stock takes off and the puts price plunges, a trader can take early profits on the puts by buying them back and rolling the trade forward to a later expiration date and whatever strike makes sense.

The risk in selling puts is that by the time a puts option expires, the stock may be 5% to 10% or more below the strike price. Then you have to decide whether to take the loss or sell covered calls on the stock and spend a few months waiting for a rally back to the strike, or purchase price.

https://djincometrader.substack.com, @realDonJohnson

On the date of publication, Donald E.L. Johnson had a position in: DOW. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.