Trade Alert: Roll this Expiring Option Today for Another Instant Dividend
Stocks got a boost this morning as the Federal Reserve's favorite inflation gauge rose less than expected last month, but the S&P 500 is still on track to post a monthly loss of more than 4% in September.
The core Personal Consumption Expenditure Price Index out this morning rose by just 0.1% in August from a month ago, the least since November 2020 and below forecasts of a 0.2% rise. The annual rate, regarded as the Fed's preferred measure of inflation, eased to 3.9%, the lowest since May 2021.
But trading could be volatile as today marks September month-end and quarter-end options expiration. According to analysts at Goldman Sachs, Wall Street options dealers have short exposure to roughly $3.3 billion notional value of put options tied to the S&P 500 index. While this could trigger swings in the stock market, Ultimate Income members know full well that volatility also means larger premiums for selling options. And with the S&P down about 6% from the August highs, put-option premiums look especially lucrative right now.
Speaking of puts, Ultimate Income members should have successfully rolled expiring puts on Cisco Systems (CSCO) and Anheuser-Busch (BUD) earlier this week. That leaves Medtronic (MDT) and Starbucks (SBUX) put options as the only other positions due to expire today.
SBUX options are in the money, so we will likely acquire the stock today – and that's great news. This Strong Bullish-rated stock also boasts a Business Quality Score of 91 out of 100. The stock is close to the Health Indicator Red Zone, but it's also approaching a valley upturn, according to our Trade Cycles timing indicators.
As for MDT, the stock price is about $0.40 out of the money from our $78 put options expiring today, which are quoted at about $0.06 as I type. Market volatility is handing us a great opportunity to roll this out just two weeks and collect more income of about $65 per contract. Here's what to do.
Action to Take...
1. Buy to close the MDT Sept. 29, 2023, $78 put option, and at the same time sell to open the MDT Oct. 13, 2023, $78 put, for a net credit of $0.65 or more, good 'til canceled.
Note: Aim to buy back the existing put option for about $0.10 or less and sell the new option for $0.75 or more, resulting in a $65 net credit. But since today is expiration, consider adjusting prices by a few cents if needed to get filled by the close.
I'm sizing up several new Ultimate Income opportunities for next week in both puts and calls where the timing is right. So, stay tuned for more updates and trade alerts.
Good investing,
Mike Burnick Senior Analyst, Ultimate Income
P.S. If you have any questions or concerns, please reach out to me at emailmikeburnick@tradesmith.com and include "Ultimate Income" in the subject line.
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