Astera Labs surged more than 19% on Monday with a breakout on strong volume. It was teasing around 100 for over a month, with multiple tries at it before Monday's breakout. Astera Labs stock is pulling back a little here on Tuesday, so if you want to invest in the chipmaker you could buy it at around 113.50 and hope shares keep rising.
But there's a more conservative play that generates income. You could sell a Jan. 16 put with a strike price of 110 and set aside the $11,350 in case you're assigned on the short put.
That 110-strike put generates around $2,000 in option premium in just under 6 months.
If assigned on the sold put, the net cost basis would be equal to the strike price of 110, less the 20 option premium for a net purchase price of 90. That's like buying it a few days ago before the big breakout.
If it just goes up from here, the $9,000 allocation to Astera Labs still generates an annualized return of 45% with option premium captured.
A Slightly Less Bullish Strategy
What's the catch? Well, much like owning Astera Labs stock, if shares keep dropping, the sold put will lose money in the short term.
If Astera Labs stock is below 110 in mid-January, the put seller is forced to buy 100 shares at 110. But if Astera Labs stays above 110, the trade achieves that 45% per annum return if the put expires worthless.
Cash-secured puts are a bullish investing tool, though a slightly less bullish play than owning Astera Labs stock outright. The potential gains are limited to the premium received.
The 120-strike put currently has a delta of 36. Selling this put gives an exposure roughly equivalent to owning 36 shares of Astera Labs stock. But this will change as the stock moves up and down.
One method that can help cut the risk is to turn it into a spread and buy a 100- or 90-strike put. This turns the trade into a bull put spread. You will cut down the premium received but will lose a lot less if the stock were to fall precipitously for some reason.
This is one of my favorite strategies for generating income on stocks I'm willing to own if they drop.
Astera Labs Stock: No. 7 In Its Group
Astera Labs specializes in connectivity solutions for artificial intelligence and cloud infrastructure. In early May, the company reported first-quarter revenue of $159.4 million, a 144% year-over-year increase, driven by demand for a high-speed interface standard known as PCIe, as well as Ethernet products. It plans to announce second-quarter earnings in early August.
According to IBD Stock Checkup, Astera Labs stock ranks No. 7 in its group. It has a Composite Rating of 97, an EPS Rating of 82 and a Relative Strength Rating of 97.
Despite a high valuation with a price-to-earnings ratio over 400, analysts remain optimistic. That's due to Astera's strategic partnerships and expanding product portfolio.
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 own 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.
