Trade Alert: Sifting Through the Tech Wreck

What’s in It for You?

On the one hand, selling a put on a day like today opens up the potential for higher premiums at lower strike prices. On the other hand, this tech-induced selloff just caused the S&P 500 to breach its 200-day moving average, an ominous sign to chart watchers.

The thing is the underlying fundamentals of the market haven’t changed. But the headline risk has. Fear of global trade wars and the threat of federal regulation of tech-sector darlings have investors fleeing for safe havens.

But the factors behind these risks are being driven by a president who views the stock market as a sort of alternate approval rating. Is the resulting tumult enough to cause him to blink?

Or is it possible that the outcomes from the two aforementioned factors will actually be more constructive than assumed at first glance?

Obviously, I don’t have the answers to those questions. And it’s too much to assume anything in this environment.

But today’s trade involves a strike that gives us a buffer. And the expiration occurs before the company is expected to next report earnings, which protects us from potential disappointment on the earnings front, while also giving the market enough time to stabilize.

So far, shares of software giant Oracle (NYSE: ORCL) are holding up a bit better than the major market indices, including its sector peers in the tech-heavy Nasdaq.

But that may be because in addition to its entrenched position in enterprise software, the company already suffered a selloff following disappointing results for its strategic shift into cloud computing.

The power of incumbency still gives Oracle time to successfully execute this long-term transition. However, we don’t necessarily have to stick around for that if the stock doesn’t get put to us. 

This trade will generate immediate income of $62 per contract now, with the possibility of buying Oracle at a 10.5% discount to where it currently trades if the stock gets put to you. Investors should set aside $4,000 per contract sold to buy the stock in case the option expires in the money.

Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.

How to Make the Trade:

  • Trade: Sell to open the June 15, 2018, $40 Put on ORCL.
  • Allocation: Sell one put for every 100 shares you would be pleased to buy at $40 per share.
  • Prices:
    • Current Stock Price: $44.71
    • Limit Order Price: a credit of $0.62 or more.
    • Tell your broker: “I want to sell a put on Oracle (NYSE: ORCL) stock. Specifically, I want to ‘sell to open’ one June $40 Put for a credit of $0.62 per share or more.”
  • Further Instructions Regarding the Trade:
    • If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least $0.62 per share or more.
    • Place your limit order on a “good ‘til canceled” (GTC) basis and be patient.

The Win-Win Situation: 

For every put contract you sell, you will collect $62 that’s yours to keep no matter what happens in the future.

If the put expires worthless, meaning the stock price is above $40 per share at expiration, then we’ll do another trade to create another instant payment.

If the stock is trading at or below the strike price upon the contract’s expiration, then you’ll be buying the software giant at a 10.5% discount to the current market price, while locking in a yield of 1.9%—plus the premium you pocketed when you sold the put.

Then we’ll collect the dividend while creating more instant payments by selling covered calls against the stock.

Stock Talk



Filled @ 0.65 on Ally

Ari Charney

Ari Charney

Thank you for posting your fill.


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