Does It Qualifies as Mechanical Investment?

Investing Strategies Mechanical Investing
21

Just in terms of two stocks that are particularly attractive at the moment for doing cash secured puts, and the costs/potential returns involved, I have been doing this with MRNA and UPST.

For MRNA (Moderna), they are sitting on a huge pile of cash, have lots of potential future business, and are very unlikely to go to zero. I am on my third batch of put options with it. As of today, 7/11/22:

MRNA 178.61
Aug-22 180 MRNA PUT 16.45/17.3, with a target sell of $16.6 per share, requiring $163.4 per share to back it up (multiply everything x 100 for contracts). Return of 10.16% on your cash, holding for 39 days, or an annualized return of 130%. You would have been better holding the stock if it goes past $196.6, and start losing money at a price of $164.4 or lower.

Sep-22 180 MRNA PUT 20.55/21.15, with a target sell of 20.60 per share, requiring $159.40 per share to back it up. Return of 12.92% on your cash (annualized 86%), holding for 67 days, FOMO at $200.60, and losses at 159.4 or lower.

For UPST (Upstart), again they are sitting on a whole pile of cash, and will not be going out of business. They were the darling of Saul’s board a while ago, but have fallen (and fallen out of favor).

UPST 27.72 (note that they fell drastically last week when they annouced lowered guidance)

Aug-22 30 UPST PUT 6.7/6.85, with a target of $6.7 per share, requiring 23.30 in cash, and an immediate return of 28.76% (annualized 377%), holding for 39 days, FOMO at 36.7.

Sept-22 30 UPST PUT 7.6/8.05, with a target of 7.7 per share, requiring 22.30 in cash, and an immediate return of 34.53% (annualized 215.3%), holding for 67 days, FOMO at 37.7.

There is a whole lot of volatility here, so this is not for the faint of heart. But it is fun. And again, the idea is to rinse, recycle, repeat over and over again. As long as the permiums are there for you.

–Gabriel

3 Likes
22

For UPST (Upstart), again they are sitting on a whole pile of cash, and will not be going out of business. They were the darling of Saul’s board a while ago, but have fallen (and fallen out of favor).

Not only that, but now any discussion of UPST has been banned from the Saul board.

23

Jim, I sold BRK puts 1/19/24 $250. Is this within the criteria you have descrbed previously for selling cash secured puts?

24

Jim, I sold BRK puts 1/19/24 $250. Is this within the criteria you have descrbed previously for selling cash secured puts?

I’m not Jim (but aspire toward Jim-ness), but if you sell a Jan’22 Put contract with a Strike at $250, you’re committed to coming up with $25,000 (to buy the 100 shares at $250/shr) if the Option holder should desire to exercise the Option between now and 2024-01-19. Of course you will receive the Premium from selling the Put so that can be subtracted from your potential liability. The last price paid was $18.69 so would get $1869.00 and the amount of your current cash that you will be risking would only be $23,131 ($25,000 - $1,869).

So, if you’re tying up $23,131 for 554 days to receive $1869, that’s an effective annualized return of 5.3%. To get above 15% you’d have to go to a higher Strike. Right now, a Strike price of $340 has an effective annualized return of 15.7%.

heink

25

The last price paid was $18.69 so…

Just to clarify, the Premium you receive (when selling a Put) will be determined by the market and will most likely be somewhere between the Bid and the Ask price for the Option. At the time I wrote my previous note, the Bid was $17.70 and the Ask was $19.05.

heink