We have two new Perpetual Income Portfolio Club trades to put on this week.
First, our Chewy (CHWY) shares were called away last week, so I am recommending a put option this week. The stock is holding up well despite the sell-off in many high-multiple stocks. Shares appear to have found support at $27.50, and we do not have to contend with earnings until early March.
Next, our Delta Air Lines (DAL) call expired worthless last week, so we are selling another one today. The stock was hit hard by coronavirus-related selling but has now stabilized. Shares are trading in a tight range between $57.50 and $60 with elevated options premiums.
If you are not currently in a DAL position, you can enter one at this time. However, 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.
Note that no action is needed on the Applied Materials (AMAT) Feb Monthly (2/21) 68 Put or the Cheniere Energy (LNG) Feb Monthly (2/21) 57 Call at this time. We may roll these positions before expiration, so keep an eye out for alerts.
Current Stock Price: $28.91
Action: Sell to open the CHWY Feb Monthly (2/21) 29 Put
Current Option Price: $0.50-$0.60
Recommended Limit: Set initial limit order at $0.55
DAL Uncovered Shares
Current Stock Price: $58.17
Action: Sell to open the DAL Feb Week Four (2/28) 58.50 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: $0.74-$0.76
Recommended Limit: Set initial limit order at $0.75
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.