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20 November 2023 Cash Secured Puts Trades Update #2

Stock Picking, Options Trading for Income - Sat Oct 28, 2023

By Donald E. L. Johnson

Cautious Speculator

  • The VIX is at 21.27, back to where it was last March.
  • Cash secured puts options are relatively high.
  • This is a good time for risk takers to sell puts and covered calls stock options on depressed dividend stocks.

Volatility, as measured by the CBOE Vix, is the highest it has been since late last March.

High volatility gives sellers of cash secured puts high options prices and high risks of having sold puts options assigned unless the strikes are deeply out of the money.

Please click on images and zoom in for better views.

Last week I sold about puts options on Deere & Co. (DE) , General Mills (GIS) , Microsoft Corp. (MSFT) , Newmont Mining Corp. @NEM and Healthpeak Properties Inc. (PEAK) . These puts expire in November along withputs options on Amazon.com Inc. (AMZN) , Bunge Ltd. (BG) , Caterpillar Inc. (CAT) , Chevron Corp. (CVX) , D.R. Horton (DHI)  Intuitive Surgical Inc. (ISRG) , Kraft Heinz Co. (KHC) , Mp Materials Corp. (MP) , J.M. Smucker Co. (SJM)  and Exxon Mobil (XOM) .

Note that I’ve sold multiple strikes and dates on DE, GIS, MSFT and XOM. I’m trying to meet my monthly options premiums income goals with trades on fewer dividend and dividend growth stocks like MSFT.

On Oct. 21, I posted about my first 10 November expiration puts trades in Update #1.

I’ve raised my monthly options premiums and dividend income goals to get better returns on my cash.

Selling puts is a bullish trade, and I’m committing more of my cash to puts options on mostly high quality stocks and a couple of speculative stocks like MP and PEAK.

The 20 puts options trades have averaged a 9.2% margin of safety (MOS, which is the same as the discount). The average delta is -0.16, which is the probability that a puts contract will be assigned if a stock closes below the strike price. Delta also indicates how much an options price will move for every dollar change in the stock. The average OTM is 80.578% and the average implied volatility is a high 35.888%.

The average immediate return on risk (RoR) is 0.956%, or 11.93% annualized if similar trades can provide similar returns for the next 12 months. If all of these trades were assigned, the average dividends would be 2.824%, compared with about 2% dividends on the Dow Jones Industrials Average 30 stocks.

The average trade duration is 28.75 days. I own AMZN, BG, GIS, DHI, ISRG, KHC, NEM and SJM.

Most of these puts trades are on stocks that are correcting and are trading below their estimated fair values and below analysts’ target prices. I’m trying to sell puts at strikes that are less likely to be assigned, but surprises do happen and have been hitting me a bit more this year than usual.

Most of these stocks pay dividends and except for NEM and Peak have low dividend payout ratios. Except for CAT, which has a big finance company that distorts its payout ratio and PEAK, which is a Real Estate Investment Trust that owns some medical office properties, the debt to equity ratios look pretty safe.

None of these stocks have outrageously high price to free cash flow ratios. Few are over bought and some are over sold.

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On the date of publication, Donald E.L. Johnson had a position in: AMZN, BG, CAT, CVX, DE, DHI, GIS, ISRG, KHC, MP, MSFT, NEM, PEAK, SJM, XOM. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.