This Firm Is Bucking The Trend...Collect Cash!

Selling put options is a great way to generate income and solid annualized returns by taking less risk than owning the same amount of common stock long. When I look for these trades I target earning 2% or more for every 30 days of expiration time.

Selling a put option is a strategy where you are slightly bullish on a stock and this reduces your risk by being able to name the price (called the strike price) you are willing to pay for the company. This contract is valid for a specific amount of time called the expiration date.

These terms are set by you and for agreeing you are paid upfront for the potential obligation to buy 100 shares of stock for every put sold. I typically look at options expiration dates between two weeks and two months.

As the stock market continues its correction phase most individual stocks will also fall. Similar to most stocks rising during a rising tide.

When a stock rallies in the face of a weak market this is a great sign that there is a lot of demand for this companies shares which should begin to outperform to market as stock prices begin to rally.

Today's example is Tyson Foods (TSN). We can take advantage of this companies strength by selling puts for income.

Since Monday the S&P 500 is down 3.4% and the Nasdaq is down 6.4%. Many market participants believe this is the start of a larger correction which could last until markets are down between 10 and 15% as some of the monster moves from last year are worked off.

Stock market pullbacks are perfectly normal and does not mean we will experience another market crash. This move is largely driven by a rapid change in bond yields which has investors re-evaluating company valuations.

Tyson shares have not rallied much with the overall market from the March 2020 lows but the recent strength is a great sign. Share prices are up 5.3% over the last week.

Tyson has great fundamentals and products that consumers need. They produce 20% of all chicken, beef and pork in the U.S. and own popular brands Tyson, Jimmy Dean, Hillshire Farm, Sara Lee and Ball Park.

Tyson is also jumping on the alternative meat sector becoming a major player in plant based protein.

Over the last 12 months sales hit a new all time record at $42.8 billion and earnings have rallied 67% to $6.03 over the last 5 years. They maintain an industry leading profit margin of 5.1% and shares are cheap at just 8.2 EV/EBITDA.

Trade details:

Sell to open April 16 $70 puts on Tyson for $2 using a limit order. Earn a 2.9% payment on your purchase obligation.

If shares are above $70 on expiration: you keep the premium for a 24.8% annualized return and look for your next trade.

If shares are below $70 on expiration: you will buy 100 shares of stock for every put sold at an adjusted cost basis of $68 (about 5% below yesterdays closing price). You can now sell covered calls for more income.

For protection use a 25% trailing stop loss at $51.

Happy trading!

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Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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