April Option Selling Ideas

Each month, the week after options expiration, I will post a new set of option trades that you can look to make over the next month. I will focus on:

  • Selling cash-secured puts on stocks that we would like to own and are approaching support.
  • Covered call writing on stocks that are rallying but hitting resistance, so we can take some profits.
  • LEAPs for gaining leverage on undervalued intermediate term growth ideas.
  • Hedges.

Always use limit orders and set your GTC for a week or two. Review a few times per week. It doesn’t hurt to check early each morning after looking at the stock market futures.

You can adjust prices to be a few nickels, dimes or quarters more favorable. When selling options, you want to get the ASK or a little higher if possible on volatility. When buying options, you want to get the BID or a little lower if possible on volatility.

Cash-Secured Puts

Using cash-secured puts to accumulate a stock position is my favorite move. It allows me to create income for portfolios, get lower net cost basis and reduce my money at risk.

This transaction is best used with low or no dividend stocks, and companies with higher volatility. To establish an initial position I will often buy a starter position in a stock and also sell a cash-secured put for the same amount of shares, i.e. buy 100 shares and sell one cash-secured put.

For cash-secured put selling, adjust your strike prices a little lower if you already have a position in a stock and are willing to take a little less income to reduce your likelihood of adding more shares.

Remember, we don’t use margin, so these will be against your cash position. Also, if you already own a bit of a stock, only write only as much as appropriate for your asset allocation, and will often go one strike price lower than what I have listed and take a lower premium, to still collect some premium, but have less “put to” risk.

Stock/ETFExpirationStrike PriceLimit Sell Price
Antero (AR)May201
CenturyLink (CTL)May161.20
Encana (ECA)May11.70
Exact Sciences (EXAS)July403
GameStop (GME)May141.40
Kinder MorganMay15.75
Micron (MU)May423
Nutrien (NTR)June504
Sierra Wireless (SWIR)June17.502.50
SunPower (SPWR)June8.80
SuperValue (SVU)May141.40
AT&T (T)May332
SPDR Oil & Gas Exploration & Production ETF (XOP)May351.75

Covered Calls

You do not necessarily need to write these against your full position. Often writing against 1/2, 2/3 or 3/4 makes a lot more sense since you do want your winners to run. This is done to take profits when stocks are higher than we bought them and running into resistance or on stocks we own that are falling in price and we want to hold on but reduce our cost basis a bit.

I do NOT advocate buying a stock and then writing a covered call immediately. EVER. That is a fake strategy perpetuated on millions. You are accepting all of the risk of downside and getting no upside when you do that. The right way to sell/write covered calls is on appreciated positions that are overbought, which you are looking to take some profit on.

Stock/ETFExpirationStrike PriceLimit Sell Price
Amazon (AMZN)June1460160+
Cummins (CMI)June1608+
Kohl’s (KSS)May653.25+
Nvidia (NVDA)May24014+
PalPal (PYPL)June803+
Shopify (SHOP)May14512+
Sony (SNY)May502+
Weight Watchers (WTW)May755+

LEAPs

LEAPs are long-term call options appropriate for replacing part of a stock holding in order to gain leverage.

Stock/ETFExpirationStrike PriceLimit Buy Price
Antero (AR)Jan 19202
Chesapeake (CHK)Jan 2031
Encana (ECA)Jan 20122.25
Micron (MU)Jan 20606
SPDR Oil & Gas Exploration & Production (XOP)Jan 20384

The Chesapeake LEAPs are replacing my Chesapeake stock. Why? Because either Chesapeake survives and thrives or undergoes a reorganization. I sold my Chesapeake shares and used 3/4 of the money on LEAPs.

Hedges

I rarely hedge, however, given the reintroduction of volatility and my uncertain outlook for the economy and markets in coming years now that the Fed is starting to normalize and we appear to be at peak earnings, I am likely to hedge more. Buying puts on broad indexes and certain stocks makes sense to me off of rallies. This has worked well for me in the past.

Stock/ETFExpirationStrike PriceLimit Buy Price
iShares Russel 2000 ETF (IWM)November1455-
SPDR S&P 500 (SPY)September2802-
iShares US Healthcare Providers ETF (IHF)August1704-
iShares MSCI Italy CApped ETF (EWI)September341-

Make sure to read:

How Low Can The Stock Market Go?

and

The ‘Amazon Effect’ Is About To Hit Healthcare

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* I always use the monthly options, not the weekly, however, if you can find a liquid option on the weeklies with better pricing, have at it.

To learn more about options please visit and study from the CBOE Education Center. Most brokerages have learning centers and webinars as well. Typically to get approved for cash-secured put selling you must tell your brokerage you have at least a $75,000 per year income, $50,000 liquid net worth and $100,000 net worth.

Also, I am focusing on the stocks and ETFs I like. If there is a company that you really want to own, learn from how I am using options to find similar type transactions on your preferred stocks.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have or am attempting to trade the listed options. I own a Registered Investment Advisor – https://BluemoundAssetManagement.com – however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.