March Option Selling Ideas

Each month at about options expiration I will post a new set of option trades that you can look to make. 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, particularly before the open on Monday and again before the open on Tuesday. 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.

For record keeping purposes, if an option hits the most current limit prices I have posted, I will add that option to our track record.

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.

Stock/ETF ExpirationStrike PriceLimit Sell Price
Encana (ECA)April11.75
Exact Sciences (EXAS)March 422
Exact Sciences (EXAS)March453
GameStop (GME)March16.75
Micron (MU)March423
Sierra Wireless (SWIR)June17.502.50
SunPower (SPWR)March7.70
SPDR Oil & Gas Services & Equipment ETF (XES)March15.75
SPDR Oil & Gas Exploration & Production ETF (XOP)March341.30

I am waiting to sell Antero (AR) puts until we get clarity on natural gas inventory. 

Encana is a stock I am very high on in the oil space, it’s worth accumulating a double weight position on.

Exact Sciences has strong support in the lower $40s. It’s volatile, so having that put out there could get filled. If you own shares already, look to sell the $42 put. If you do not own shares, look to sell the $45 put.

GameStop appears to have bottomed and is worth accumulating or adding to a full position.

Sierra Wireless is a pure play on IoT. I missed it once and now it has come back to me. It has a bright future. The put proposed is in the money, meaning that it’s more likely you take ownership of the stock. If Sierra is trading under $17.50 (it’s about $16.50 now), then you’ll get to own it at a net price of $15ish. That’s really nice. If the stock rises past $17.50, then you’ve collected 14% on your money in 4 months. That’s pretty nice too.

SunPower has a lot of negatives thrown at it recently. To me, that means that surprises in the future are more likely to be positive. I am accumulating SPWR to a double position.

The SPDR energy ETFs are very complimentary. I own each at about 8% of my portfolios. 

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)April146060+
PalPal (PYPL)April803+
Rockwell Automation (ROK)April1905+
Shopify (SHOP)April1407+
Sony (SNY)April502+
Weight Watchers (WTW)April757+

You can sell covered calls on virtually anything that has gone steeply up the past several months. Ask if you have questions about your existing holdings.

LEAPs

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

Stock/ETF ExpirationStrike PriceLimit Buy Price
Antero (AR)Jan 19202
Chesapeake (CHK)Jan 2031
Encana (ECA)Jan 19102.25
Encana (ECA)Jan 20122.25
SPDR Oil & Gas Exploration & Production (XOP)Jan 19363
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. 

I  had previously considered SunPower LEAPs, however, the options are expensive and I have decided against it. Better to buy shares at these low prices. 

Encana is my favorite oil stock and I have two LEAPs. I bought the Jan 2019 $10s a while ago and am listing them for those who want to hit both years. I am buying the January 2020 $12s now.

The SPDR Oil & Gas Exploration & Production ETF is a good way to spread risk and the options are very reasonably priced.

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
SPDR S&P 500 (SPY)April2664 to 5
iShares US Healthcare Providers ETF (IHF)May1604ish
    

I am opening a put position on the S&P 500 as it has now retraced about half of its decline. A classic Fibonacci retrace. Do not overextend on this trade. Only commit as much money as you can afford to lose, i.e. a single digit percentage. We might have to roll this trade out several times to find a winner. Reference this article for where I think the S&P might be headed: 

How Low Can The Stock Market Go?

If the S&P retests the 200-day moving average, I would likely take about half of my original principle off the table and ride the rest into the next budget showdown in Washington D.C.

I believe the healthcare ETF can fall as low as the $140s, it’s a question of when in my opinion. Might have to rollout. Many of the top holdings I mentioned here:

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 am/we are long EXAS, ECA, XOP, XES.

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 also own SPY puts and various sold puts. I now own put options on UNH and am considering opening put positions on other stocks mentioned as sells in the article. 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.

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