Are you a bit of a risk taker? If so, check out the following article suggesting 7 option ideas you may want to investigate. When placing riskier trades though, make sure you can afford to lose the money you’re playing with. Of course, that’s not the plan, but in the options market, there is no sure thing.
I don’t talk about options a lot in my articles, but that’s mostly because I don’t trade them myself currently (I have before). Options can be a cheap way to get into stocks without making a large capital contribution, and can also be a good way to protect yourself against adverse movements (something I preach for all earnings trades). Now that volatility has come down, I feel that it’s time to look at some options trades that might work in the next few months. Here are my seven best.
Sell Apple (AAPL) February $375 put: Apple has been mostly flat since its post-earnings flop. The stock has stayed mostly around $400, with many expecting it to take off again soon. The average analyst price target is $500, so I would expect the stock to do well in the next couple of months. The new iPhone has been a great hit, and we know this quarter will be a good one. I chose the $375 strike in February because you only lose money if the stock drops below $357, which is just above the October 4th low. If Apple is trading below $357 in Februrary, I think the market is in big trouble. Look for this to be easy cash.
Buy Interdigital (IDCC) March $55 call: Interdigital is currently involved in an auction process to sell itself. The tech company, primarily wanted for its large patent pool, is currently trading for about $45, and most think that a sale could fetch $100 to $120 if the company is valued similarly to Nortel. I’m not that optimistic, but I think somewhere around $85 or $90 would be the price, if a takeover occurs. A call option for $4.80 gives you another 4 months for a deal to occur. I like this one because the profits could be huge, but if the deal doesn’t happen by then, your downside is limited. I think the absence of a deal would cost the stock more than $5, so the call option seems like a good idea to me.
Sell SPDR Gold Trust (GLD) Februrary $170 put: Since the GLD hit a high over $185 in September, its lowest close is around $156. The break-even point on this trade would be about $157, close enough to that low level for me. I think Gold, which closed around $1,800 today, goes higher as the US struggles to find a debt deal and inflation picks up slightly. Gold would have to drop to $1,600 by February for you to lose money, and I don’t see that happening. I think there’s a better chance of $2,000 or higher by then.
Sell Google (GOOG) March $650 call: Take a look at this 2-year chart of Google. Notice the range the stock is in? I certainly do. Google has struggled above $600 several times, the last of which was right after earnings, when it hit $605 the next morning and quickly backtracked to the $580s. I don’t see Google breaking out of this range anytime soon, unless they split the stock. Your break even on this trade is $676 anyway, which is 10% higher from Monday’s close. I don’t see that happening, even by March.
Sell Amazon (AMZN) April $240 call: Amazon closed Monday at $217. Why is that significant? Well, it means that the Forward P/E, using current 2012 earnings estimates, is 105. Yes, I said one hundred and five. I’ve not been a fan of the valuation, and I warned investors before earnings to stay away. Going into earnings, the Forward P/E was 70. That seems crazy enough, but it’s 50% higher now. Amazon is growing its revenues, but not its profits. It may even lose money in the current quarter. It cannot hold such a lofty valuation. And even if it does, your break even is $254, which is still 17% higher from here. With earnings estimates likely to come down even further, it only seems like a matter of time before this triple digit forward P/E takes a beating.
Buy Boston Beer (SAM) March $100 call: Boston Beer is a small company when looking at the beer industry, but there’s a ton of room for growth. The company is only at $500 million in revenues per year currently, while a company like AB Inbev (BUD) is close to $40 billion. Boston Beer has plenty of room to grow. I recently toured their Boston brewery, and I was totally impressed by what I saw. They don’t mass produce a cheap beer. They take pride in their beer and want it to be the best. With a market cap of only $1.3 billion currently, I think it’s a good long term play, and I think you will see some of that growth in the next few months. They recently beat on earnings, and that gave the stock a nice lift. A break even point of $106 by March implies less than 10% upside. For such a small company, that is extremely possible.
Buy Visa (V) March $95 call: The holiday season is upon us, and I believe it will be quite a good one. With gas prices 20% above last year’s levels, the trend to online shopping should continue to grow. And that means credit card usage. I like Visa’s valuation over that of Mastercard (MA), so that’s why I selected the name. With the stock currently at $93, a jump to a $101 break even seems rather likely. Most analysts love the company, and I do too. I think a great holiday season pushes us into triple digits, so the profits would be there for the taking.
Symbol Month Type Strike Action Price AAPL February Put $375 Sell $18.15 IDCC March Call $55 Buy $4.80 GLD February Put $170 Sell $12.85 GOOG March Call $650 Sell $26.10 AMZN April Call $240 Sell $14.20 SAM March Call $100 Buy $6.20 V March Call $95 Buy $6.30 Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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