3 Naked Puts On Blue-Chip Stocks For $1,000 In Income

sellJust make sure to use ‘safer’ stocks for this cash-generating strategy

One of the best strategies to use in a bull market — in terms of generating additional monthly income — is selling naked puts. This means you sell the right for someone else to “put,” or force you to buy, a stock at a certain strike price on or before a given contract expiration date. In exchange, you receive a payment.

If you had, say, a $100,000 portfolio and generated a thousand bucks every month from this strategy, you could add 12% to your annual returns.

It’s not free money, of course, and you can’t just choose any old stock to sell naked puts against.

You have to choose the right stocks — stocks that you don’t mind holding or owning — possibly for a long time. Remember, if the stock is put to you and the market or the stock craters before or after you own that stock, you’d better be comfortable owning it.

Thus, I’ve learned that the best stocks to sell naked puts against are great companies that are going to appreciate over time. They are stock that most people might like in a long-term diversified portfolio. Even then, not every stock is appropriate. I have my own criteria that is part of the overall strategy in my new stock advisory newsletter, The Liberty Portfolio.

Here are three blue-chip stocks I think are ripe for income generation:

Naked Puts on … Nike (NKE)

Nike Inc (NYSE:NKE) is not a stock I would normally buy, because retail clothing is a scary place in general. But NKE is an exception because it has a global brand and reach that has proven to be able to pivot with the times.

Nike stock ebbs and flows but goes up over time, and it’s only about 10% off its two-year low. Now might be a good time to move in.

NKE closed Wednesday at $54.53. We’re well past earnings, which were in March, and the next report doesn’t report until June. Meanwhile, the 16 Jun $55 naked puts are selling for $1.45. You’ll get a 2.6% return for a 43-day holding period, which comes out to 22% annualized.

Buy two of these naked puts and earn $290.

Subtotal: $290

Naked Puts on … Walt Disney (DIS)

Walt Disney Co (NYSE:DIS) is firing on most cylinders. It isn’t firing on all cylinders because ESPN cannot get out of its own way. Consumers are screaming at ESPN to remove the politics from its sports coverage, but the outlet isn’t listening. It cut 100 jobs and still doesn’t get it.

Fortunately, Disney is an amazingly diverse entertainment conglomerate with four incredible studio entertainment divisions.

DIS stock closed Wednesday at $111.62, and we have an interesting situation in that earnings are coming up next week. Normally, I would never sell options this close to earnings. However, we can get a nice premium by selling the 21 Jul $110 naked puts.

First, that puts us more than two months out from any bad news that might come next week. We also have a $1.62 buffer before the stock gets put to us. Also, I wouldn’t mind owning DIS stock for the long run. (In fact, I already do.)

The 21 Jul $110 naked puts sell for $2.85. Sell two contracts for $570.

Subtotal: $860

Naked Puts on … Starbucks (SBUX)

Starbucks Corporation (NASDAQ:SBUX) is in the midst of a transition as it creates new products and Howard Schultz seeks out innovation in its high-end roasteries.

Despite a so-so earnings report, SBUX stock is still near its all-time high.

Even though I wouldn’t kill to own it at these levels, selling naked puts with the stock closing Wednesday at $60.59 and having it put to me is not such a bad thing. If it were, and the market holds up, I might even turn around and sell covered calls against any shares put to me.

You could quietly sell a single 21 Jul $60 contract for $1.50. That gets you a 2.5% return, which for SBUX stock is not at all unreasonable for a 78-day holding period, and represents a 11.5% annualized return.

Total: $1,010

Note: Lawrence Meyers is the author of this article. Lawrence is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he owned DIS stock. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing.

 

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