Puts I’ve sold for the first week of June have expired, netting USD$580, so it’s time to think about the 2nd week of June trade.
As usual, the same rules apply:
It must be a security you’re willing to hold and even add to if assigned (since we are selling puts, it means you will be forced to buy the shares if the option is “in the money” near expiry).
It needs to have options available for trading.
The strike price less the limit you sell the option at needs to be a valuation you’re comfortable with.
These need to be cash secured puts.
I’m still of the opinion that SPLK remains undervalued and I think I’m a willing buyer at levels near $100. You can choose whatever method you wish to slice and dice the valuation, but I remain of the belief that if SPLK retains even a 5-6% of the growing world wide data generation (particularly in light of generative AI), then I think it will be well worth multiples of what it is now.
Trade for 2nd Week of June
Short 4x SPLK puts at $101 strike, limit 1.09-1.17 expiring June 9th.
Currently, the 9th June expiry dates has the 101 strike priced between 1.09-1.17. Assuming the lower end to hold true if I sell the puts, I will be short 4 SPLK Puts at 101 Strike at an average 1.09 limit for an average price per share of $99.91 if assigned. [Important to keep this number in mind since you will want to sell calls above $99.91 if assigned].
The cash/credit I am receiving for this trade is $1.09-$1.17 (depending on settlement and open market conditions) per share for a total of $436. For at risk capital of $101 x 400 shares of $40,400, I’d say $436 (or 1.07%) is decent for a week’s worth of time.
The vix is now at all time lows and I think its getting harder and harder to find option trades that fit my conditions. The only other trade that currently fits it are the AMZN options.
Since I’m working with approximately 40k of excess liquidity, I’ll only be able to sell 3 AMZN puts.
Similar to SPLK 0.00%↑, AMZN 0.00%↑ trades near all time lows in terms of PS ratio averages. With AWS being a key workhorse for the cloud for hundreds of larger companies, I don’t see their future imperiled at any point in time. Infrastructure is hard to rip out and the cost benefits of doing so needs to be nearly 9x-10x better in order for someone to give the go ahead. I don’t think there’s a single player on Earth currently 9x-10x better than AWS in terms of Infrastrucutre as a Service and therefore feel there is more resilence there than the market seems to be thinking/assigning it.
At $123 strike for AMZN 0.00%↑ , I’ll be able to sell approximately 3 put contracts at 1.25-1.33 limits each w expiry at 9th June. That’s a total of $375USD.
Since SPLK 0.00%↑ and AMZN 0.00%↑ are both companies I’m comfortable owning but Splunk options are a little more efficient capital wise, I’m comfortable carrying out the Splunk trade. Feel free to mix and match as your capital allows you but remember that you own the consequences and benefits of your action. I will issue an update once the markets open on Monday.
For the options part of your portfolio - my rule of thumb is to try and earn 0.5% per week with capital at risk at a minimum. Over 48 weeks a year, that’s a 24% return on capital employed (if selling cash secured puts).
Usual disclaimers apply. Do your own work. I take no responsibility for your wins / losses. Will update after I’ve executed trades on Monday.