Two Reasons for My Put Approach
In March I did an introductory mini lesson called “Cash Secured Put Income.” This week I continued to sell covered call options, but I also did two put sales. My goal for each PUT transaction is two-fold.
First, I want to get some income from a position that I don’t own. I think of it as a dividend that I can time and define as a specific dollar amount. I can do this with a stock that doesn’t pay a dividend. The second goal is to potentially pick up shares of the stock at what I consider a fair price. Of course, I could enter a buy limit order, but if the price never drops to my buy price my income from that approach will always be $0.
PayPal Holdings Inc (PYPL)
I have a PayPal account, but I rarely use it. However, many like PayPal and the company is, in my opinion, a good investment. Right now, PayPal shares are in demand. I anticipated that the economic isolation of Covid-19 increased traffic and income for PayPal. Therefore, I assumed that a good earnings report could drive the price of the PYPL shares up. That makes it a good candidate for selling a PUT option. Furthermore, PYPL does not pay a dividend, but I can earn quick cash from a PUT sale.
Option Income
Therefore, on Wednesday, I sold one PUT option and received income of $279.31 for about 15 minutes of work. If the price of the shares drops below $240 by the end of the day tomorrow, I will also be obligated to buy 100 shares for $24,000. This is a “risk”, but it is a good price for PYPL shares. If the price doesn’t fall below $240, I get to keep my income and don’t have to buy the shares.
The shares closed up today at $ 252.02. Unless the market goes nuts tomorrow. I won’t own PYPL shares. If I do something similar with PYPL three more times, I will have an annualized “yield” of about 4.5%. The good news is that I don’t have to wait a year to do four trades.
Know Your Flocks & Herds 