This Simple Trade Can Earn Big Profits

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.

Homebuilding stocks remain strong in this market

Lennar (LEN) is a $34 billion leading homebuilder with diversified exposure across 20 states.

The company share price remains cheap at an EV/EBITDA ratio of 8.

The share price has been building a base at new highs and is trying to break higher.

Potentially buy shares cheaper with this put option trade.

Sell to open January 21, 2022 $105 puts on LEN for $3.50 using a limit order. You get paid 3% upfront for agreeing to buy shares at 7% below recent prices.

At expiration if shares are above $105: you keep the put premium for a 24.8% annualized return and take your capital to the next trade.

At expiration if shares are below $105: you purchase shares at about 10% discount to recent share price. Now you can start earning more income by selling covered calls or hold on to the company if you expect the share price to rally significately.

For protection use a 25% stop loss on your adjusted cost basis ($105 - $3.50) at about $76.13.

Divider provided by barge

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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