Uber Technologies stock continues to show technical strength, with the stock up 1.4% on Tuesday.
Following our successful cash-secured put trade on Uber, let's explore a new cash-secured put opportunity. This could be a new stand-alone trade, or it could be rolled from the existing trade.
Rolling an options trade means closing the initial trade and then opening a new trade.
Let's take a look at how a cash-secured put trade might look on Uber Technologies.
Setting Up A Cash-Secured Put
As a reminder, a cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock.
The goal is to either have the put expire worthless and keep the premium, or to be assigned and acquire the stock below the current price. It's important that anyone selling puts understands that they may be assigned 100 shares at the strike price.
This trade assumes investors are comfortable buying 100 shares of Uber stock at a price of 92, any time between now and Sept. 19.
Selling a Sept. 19, 92-strike put would generate around $138 in premium. The put seller would have the obligation to purchase 100 shares of Uber stock at 92 if called upon to do so by the put buyer.
The break-even price for the trade can be calculated by taking the strike price less the premium received, which in this case gives a break-even price of 90.62. That's 6% below the price at the time of this writing, around 96.40.
If the stock stays above 92 at expiry, the put expires worthless, leaving the trader with a 1.5% return on capital at risk. That works out to around 23% on an annualized basis.
Uber Stock: Risks And Rewards
The primary risk mirrors stock ownership. If Uber falls below the break-even price of $90.62, the trade will experience unrealized losses. However, unlike outright stock purchases, put sellers benefit from the $138 premium cushion.
The maximum loss on the trade occurs in the unlikely event that Uber stock fell to $0. That would see the trade lose $9,062, but most traders would cut their losses long before then.
Cash-secured puts are a fantastic way to generate a high return on stocks the investor is happy to own. If the put does get assigned, the investor takes ownership with a reduced cost base and can potentially begin selling covered calls to generate additional income from the position.
According to IBD Stock Checkup, Uber Technologies stock ranks No. 5 in its industry group. Investor's Business Daily gives it a Composite Rating of 94, an Earnings Per Share Rating of 75 and a Relative Strength Rating of 85.
It's important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a masters in applied finance and investment. He specializes in income trading using options, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
