We are doing things a little differently today.
First, I am recommending we close our General Motors (GM) put.
The stock is circling our strike, and with earnings expected next week, I don’t want to risk being assigned and holding shares through the announcement. Therefore, let’s spend a little cash to buy back the put and I will recommend a new position once the earnings dust settles.
I am also recommending something a little out of the ordinary with Twitter (TWTR) today.
If you recall, we sat out the company’s earnings announcement this week to avoid any unnecessary risk. And, boy, was it the right call.
The stock has been crushed today, falling around 13%, after the company warned of slowing user growth and provided second-quarter revenue guidance that was below analyst expectations. On the bright side, Q1 revenues jumped 28% from a year ago and earnings beat expectations.
Today’s double-digit sell-off is providing us with an excellent opportunity to initiate a covered call position as opposed to selling a put. I am recommending members purchase shares and sell a well-out-of-the-money call that expires in two weeks.
Just remember that you must first buy 100 shares of TWTR for every call you plan to sell to make sure your position is covered. Never sell an uncovered call.
GM Apr Week Five (4/30) 57 Put
Current Stock Price: $57.21
Action: Buy to close the GM Apr Week Five (4/30) 57 Put
Current Option Price: $0.09-$0.13
Recommended Limit: Set your initial limit order at $0.11, but adjust as needed to close today
Current Stock Price: $56.38
- Buy 100 shares at market
- Sell to open the TWTR May Week Two (5/14) 60 Call for around $0.76, but adjust as needed to sell a call today
And here’s where we stand with our other Perpetual Income Portfolio Club positions heading into the weekend.
AAPL May Week One (5/7) 128 Call
Apple (AAPL) announced almost surreal earnings this week, blowing past analyst estimates. Fiscal second-quarter sales were up 54% year over year to $89.6 billion, and profits nearly doubled from a year ago, thanks largely to sales of new, pricier 5G iPhone 12 models, as well as iPads and Macs. Management also said it was increasing its stock buyback plan by $90 billion and upping its quarterly dividend by 7% to $0.22 a share.
The stock barely moved on the news, leading me to believe investors had already priced in a strong report. What’s more, the stock is up almost 15% from its March low, and many funds have limits on the percentage any one holding can represent in the overall fund portfolio. Therefore, some fund managers may have been forced to reduce the size of their position in this popular stock to maintain the proper allocation.
Our call does not expire for another week, but I may recommend rolling to a higher strike before expiration.
Current Stock Price: $133.05
Action: No action is needed at this time
CHWY Apr Week Five (4/30) 80 Put
Chewy (CHWY) topped out just above $84 on Tuesday and then sold off for the remainder of the week. But the company is doing great despite the stock being stuck, and premiums are large.
CHWY is currently trading just above our put’s strike. If it closes above that level, our put will expire worthless. However, it closes below $80, we will be assigned shares and sell a call next week.
Current Stock Price: $80.46
Action: Watch put expire
Disclosure: I have positions or trade in and out of AAPL, CHWY, GM and TWTR.