Today, we’ll be putting on call positions in Chewy (CHWY), Delta Air Lines (DAL) and Cheniere Energy (LNG).
All three stocks have been hit by coronavirus-related selling — CHWY because it is a high-beta stock; DAL because of the expected impact of travel bans and cancelled flights; and LNG over concerns about falling demand for liquified natural gas from China.
LNG has been hit the hardest and is now grossly undervalued. The good news is that I expect all three stocks to bounce higher unless the coronavirus situation spirals out of control, which is unlikely. And they all have plenty of room to run.
If you are new to any of these positions, you can enter them now. Just remember that you will need to buy 100 shares of the stock first for every call you plan to sell to make sure your position is covered. Never sell an uncovered call.
Our Applied Materials (AMAT) shares were called away last week. The stock has been moving higher heading into tomorrow’s expected earnings announcement. While I expect AMAT to beat estimates, as its competitors have, I am uncertain about whether the company will issue higher guidance, which is what I believe Wall Street is looking for. Therefore, we will be waiting till after the report comes out and the dust settles to sell a put.
CHWY Uncovered Shares
Current Stock Price: $27.80
Action: Sell to open the CHWY Feb Week Two (2/14) 28.50 Call (If you are new to the position, you must buy 100 shares of CHWY for every call you plan to sell)
Current Option Price: $0.25-$0.35
Recommended Limit: Set initial limit order at $0.30
DAL Uncovered Shares
Current Stock Price: $58.65
Action: Sell to open the DAL Feb Week Two (2/14) 59.50 Call (If you are new to the position, you must buy 100 shares of DAL for every call you plan to sell)
Current Option Price: $0.25-$0.26
Recommended Limit: Set initial limit order at $0.25
LNG Uncovered Shares
Current Stock Price: $54.89
Action: Sell to open the LNG Feb Monthly (2/21) 57 Call (If you are new to the position, you must buy 100 shares of LNG for every call you plan to sell)
Current Option Price: $0.37-$0.41
Recommended Limit: Set initial limit order at $0.39
Note: Option prices tend to move around more than stock prices, so the prices you see when you receive this alert may be different than what I am seeing now. The most frequent concern I hear from members is “missing the trade” — i.e., not getting the limit price I recommend within a few minutes of placing the order.
It is important to be patient with these trades. Begin with my recommended limit for each trade, and if you need to adjust it slightly in a few hours to get in, you can do so.
The Perpetual Income Engine strategy involves selling options every week, so while a few pennies can be important to your short-term return, getting the trade executed is more important over the long run. Use your judgment as to when to adjust the trade after you place your initial order, but give it some time before doing so.
Disclosure: I have positions or trade in and out of AMAT, CHWY, DAL and LNG.