As the weekend looms ahead, the S&P 500 embarked on a quest for its seventh straight day of gains. Momentum seemed to waver slightly today, with the index taking a 0.11% dip, potentially halting the winning streak.
Despite this minor setback, the recent past reflects a brighter picture. The market witnessed its most exceptional trading week since November, successfully overshadowing the notable losses sustained during the early August correction. However, a shadow of concern cast itself upon the markets with a report indicating a plunge in housing starts and building permits to four-year lows in July.
Interpreting this as a signal of a weakening economy might be premature. Yet, the potential volatility could surge unless the Federal Reserve commits to a minimum interest rate cut of 0.25% during the upcoming meeting on September 17-18.
Considering these dynamics and the back-to-school season upon us, I scoured the market for three stocks with beneficial put options to yield substantial returns by the end of August, offering readers a means to offset the impending school year expenses.
Wishing you a fulfilling weekend ahead!
Netflix: A Continual Evolution
Pushing the envelope of exclusivity, Netflix (NFLX) has gradually phased out its budget-friendly streaming plans. The announcement made in July signaled the discontinuation of its most affordable ad-free plan in the U.S., priced at $11.99 per month. A move replicated earlier in 2024 in Canada and the UK.
Seeking equilibrium between ad-free and ad-supported models, Netflix pursues maximum profitability without compromising user experience – a quintessential principle in business. And the results speak volumes.
Leading analyst James Heaney from Jefferies highlighted the potential within Netflix stock post a brief three-day correction in early August.
Quoting Heaney’s remarks reported by Yahoo Finance on August 5, “We are increasingly bullish on the recent 10%+ pullback in the stock, as we believe a Q4 US price hike is possible on the back of an impressive content slate. We expect NFLX to accelerate subscriber growth in Q4 leading us to +7.45 million net adds (vs +3.75 million in Q3) and ahead of consensus estimates of +7.2 million.”
The bedrock of Netflix’s business appears sturdy, continually fortifying its foundations. The put option from the recent options trading session exudes an aura of allure.
Though the Vol/OI ratio stood at a modest 2.04, the transaction yielded a respectable volume of 1,341 units. At the time of writing, NFLX boasts a 1.5% surge in stock value. Despite the bid price shrinking from $7.75 to $3.70, the offer remains compelling, warranting serious consideration.
Meta Platforms: Riding the Tide of Success
While Netflix charts upward, Meta Platforms (META) grapples with a 1.7% decline in late-morning trading. Nevertheless, META stock has been on a triumphant trajectory, registering over a 52% surge year-to-date.
Veteran Canadian portfolio manager John Zechner, a figure I’ve monitored for over two decades, recently extolled the virtues of Meta Platforms stock during a segment on BNN Bloomberg TV.
Elucidating his stance on August 13, Zechner emphasized, “The hyperscalers are better positioned to roll out these services profitably. Meta showed that in the last quarter. A couple of things for Meta. Directed advertising. They lead in online mobile advertising. That you can effectively direct using AI. And the other thing is just bundling it with its other apps and selling it down to the customer… And you’re getting all of that for a market multiple.”
As Zechner aptly depicted, securing a company’s stake in 18% of the digital advertising realm at a fair valuation presents an opportunity difficult to disregard. In Q2 2024, the company witnessed a 22% surge in revenues, reaching $39.1 billion, while its income soared by 73% compared to Q2 2023, reaching $13.5 billion.
Efficient cost management practices pave the way for enhanced free cash flow – a significant achievement of nearly $50 billion in the trailing 12 months leading up to June, earmarked for further investments in AI ventures.
The chorus of optimism finds resonance as 40 out of 45 analysts advocate a Buy rating (4.67 out of 5) along with a target price pegged at $570.83.
As for the enticing put option sales, my focus is on the Aug. 23 $530 strike.
The bid price of $5.10 boasts an annualized return of 43.3%. While my optimism demurs on the likelihood of the share price dwindling to $524.90, the inherent uncertainties temper enthusiasm.
In the current scenario, where the last bid price stands at $9.10 and the share price hovers around $529.58, the annualized return catapults to 88.6%. Should the necessity arise to purchase the shares, the net acquisition price stands at $520.90. With seven days remaining, this prospect presents an intriguing avenue for bolstering income.
Selling both puts could funnel $1,280 in earnings over a brief one-week duration. The caveat, of course, lies in the eventuality of buying 100 shares, mandating a prudent assurance of available funds in the brokerage account.
