I’m off for two weeks' vacation tomorrow, so I thought I’d find some cash-secured puts that might help underwrite some of the expenses I’m sure to incur.
In yesterday's trading, there were 433 unusually active put options, including 34 with Vol/OI (volume-to-open-interest) ratios of 10.0 or more. While many were high-risk, money-losing businesses, several were quality companies with successful and sustainable business models.
The object of the exercise is to find three potential cash-secured puts to generate $1,000 in income over the next 30 to 45 days. In the worst-case scenario, I will have to buy the shares at the expiration date. At best, I’ve generated some extra spending money.
The companies in question should have a market capitalization of at least $1 billion, generating profits in both the latest quarter and fiscal year, and experiencing sales growth.
Here’s what I’ve come up with.
Palantir Technologies (PLTR)
Palantir Technologies (PLTR) has the potential to become a trillion-dollar company someday. If it continues on its current growth trajectory, it will arrive sooner rather than later.
In March, I argued that despite PLTR stock being up 28% year-to-date, aggressive investors should consider betting on the AI-focused business to continue its momentum in 2025. At the time, it traded around $97. It’s up 56% in the 3.5 months since.
The covered strangle I suggested worked out perfectly with the share price staying within the $130 call strike and $77 put strike, generating an 18.3% annualized return.
In this situation, I’m considering selling a cash-secured put for income. The Aug. 29 $135 put has a bid price of $5.80, which works out to an annualized return of 35.7% [$5.80 bid price / $135 strike * 365 / 44]. That’s not a bad return for a month and a half. It also gets me more than halfway to my goal of $1,000 in income.
The 44-day DTE (days to expiration) is a nice combination of premium income and favorable time decay. The downside is the risk that you may be asked to buy the shares at $135 should they fall below that by Aug. 29.
However, given the Barchart Technical Opinion is Strong Buy, the likelihood of this happening is low. The profit probability is 76.02%. Worst-case, you buy shares in an excellent company for 10% off their current price.
O’Reilly Automotive (ORLY)
I've been a fan of O'Reilly Automotive (ORLY) for some time. The aftermarket auto parts retailer operates an efficient business, serving both professional mechanics and do-it-yourselfers.
Founded in 1957 by the O’Reilly family. Former CEO David O’Reilly still owns stock in the company and serves on its board as Executive Vice Chairman. As of March 31, 2025, it has grown to 6,416 stores across 48 U.S. states, Puerto Rico, Mexico, and Canada.
The company’s focus is on share repurchases rather than dividends. In 2024, it repurchased $2.1 billion of its stock through buybacks. Since it began its share repurchase program in 2011, it has returned over $25 billion of its excess capital to shareholders.
While I sometimes question the appropriateness of share repurchases because companies may overpay, I appreciate their dedication to this particular capital allocation lever over dividends, which can become a burden.
Over the past decade, it has grown its earnings per share by 16% compounded annually. There’s nothing to complain about if you’ve been a shareholder for the past five years, the company has generated an annual total return of 25.2%.
Of the two puts above, I’d go with the $89.33 strike expiring in 30 days. While the stock lost 16% between March and May in 2024, it tends to exhibit relatively low volatility, with a 60-month beta of 0.58.
The annualized return of 26.8% [$2.00 bid price / $89.33 strike * 365 / 30] is very healthy. In the worst-case scenario, you buy the shares for $87.33, after accounting for the $2.00 premium.
Datadog (DDOG)
The last of three cash-secured puts for income are two for Datadog (DDOG), whose software helps companies monitor their computer servers, applications, websites, and data in real-time.
I don’t follow tech stocks closely, but DDOG was added to the S&P 500 in early July, so it will likely receive greater coverage from analysts, which could mean its share price delivers on the company’s promise.
Since Datadog went public in September 2019 at $27, its shares have appreciated by 285%. That sounds good until you realize that it traded around $200 in November 2021, a little over two years after its IPO.
The good news is that it has nearly eightfold growth in its annual sales since going public. The bad news is that it barely generates GAAP operating profits. In 2024, it had an operating profit of $54 million on $2.68 billion, a measly 2% margin. However, its non-GAAP operating margin was a respectable 25%. If you’re at all focused on tech stocks, that should be more than adequate.
Forty analysts covering its stock rate it a Buy, with 33 (4.53 out of 5) rating it as such.
Of the two puts expiring on Aug. 15, I prefer the $130 strike because it’s closer to being at the money (ATM), generating a higher annualized return of 32.9% [$3.55 bid price / $130 strike * 365 / 30]. Plus, it gets me to $1,135 in income from these three cash-secured puts, $135 clear of $1,000 goal.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
