3 Unusually Active Speculative Put Options to Sell for Short-Term Income

While the big story on Thursday was former President Donald Trump's conviction on all 34 counts of falsifying business records, the options market continued as usual. 

The day’s total option volume was 38.5 million, 8% less than the 30-day average. As for the unusual options activity, there were 1,239 with a volume of 1.25x open interest or higher. Of those, 624 were puts and 615 calls. 

Puts are my focus for today’s commentary, with an emphasis on short-term income generation. I’ve got three speculative stocks worth considering selling put options with DTEs of 28 days or less that can make you attractive short-term income. 

Have an excellent income. 

Paramount Global 

On Thursday,Paramount Global (PARA) had three put options with Vol/OI ratios over 1.25. All three expire in 28 days or less. 

The puts in question: 1) June 14 $10, 2) June 14 $11, and 3) June 21 $10.50.  

Of the three, the first is the best. With 14 days to expiration, yesterday's volume was 11,069, 65.89x the open interest. The bid price at the close was 0.10. Based on a closing price of $11.82, it has an annualized return of 22.2%. The second and third puts have annualized returns of 75.6% and 30.9%. 

While the 76.6% return is tempting, the strike price is $1 higher, so you’ll have to buy 100 shares of the struggling entertainment company if its share price falls 7% over the next two weeks. You’re in the red if it drops to $10.66. 

You’re in the red with the first one if its share price falls to $9.90. A 76-cent differential is significant in this situation. 

Why PARA stock?

Yesterday, reports surfaced that Skydance Media, the entertainment company run by David Ellison, son of Oracle (ORCL) co-founder Larry Ellison, has increased its offer for Paramount. 

The revised offer provides better terms of sale for both its voting and non-voting shareholders and more cash is included in the deal.

What the final price is is still anyone’s guess. Sony Pictures Entertainment and Apollo Global (APO)did make a non-binding $26 a-share all-cash offer that it subsequently withdrew. 

In the end, I see a deal getting done at a higher price than where it’s currently trading, which provides a bit of a floor on its stock.

Kohl’s

Kohl’s (KSS) had three put options on Thursday with Vol/OI ratios over 1.25. One of the three expires in 28 days or less. 

The put in question is the June 21 $20 strike expiring in 21 days. Based on a closing price of $21.02 and a bid price of $0.61, it has an annualized return of 50.4%. While I’ll take 50% returns all day, it’s important to remember we are talking about Kohl’s, a department store chain doing much worse than Macy’s (M). 

Kohl’s reported Q1 2024 results on Thursday. They weren’t good. On the top line, its same-store sales decreased by 4.4% to $3.2 billion, while its operating income declined by slightly more than 50% to $27 million, a dismal operating margin of 1.3.

For 2024, it expects same-store sales to decline by 2% at the midpoint of its guidance from 2023. Its operating margin is around 3.25% and earnings per share of $1.55. Based on this outlook, its shares trade at 13.6 times those earnings. By comparison, Macy’s trades at 7.4 times its forward earnings. 

Still, with a net price of $19.39, should you have the shares put to you, I think the 19% decline over the past few days will be the worst over the next few weeks. 

As I said, it’s a bet only for speculative investors.    

Trump Media & Technology Group 

Given yesterday's proceedings, I couldn’t help but include the Trump Media & Technology Group (DJT). I’m not surprised its shares are down 6% in early Friday trading. It’s a terrible stock with minimal revenue playing in an arena (social media) that’s struggling to attract new users. 

Buying DJT stock is a mug’s game. At $5 a share, I’m not sure it would be a buy. 

So, why select the put for short-term income? There’s some potential income generation available. 

Yesterday, two put options were unusually active and expiring in 28 days or less. The puts in question: 1) June 7 $50, and 2) June 7 $34. The former’s annualized return was 401.5% based on a closing price of $51.84 and a $4.00 bid price. The latter’s annualized return was a healthy 20.9%.

That was yesterday. As I look at both, the bid price for the $50 strike is $6.25, while it’s $0.55 for the $34 strike. Based on its current share price of $49.64, the former’s annualized return is 657.0%, while the latter is 57.3%. 

While I’m not a fan, I don’t see its share price falling to $34 over the next week. It’s an excellent short-term income opportunity.