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Dell Technologies Stock Keeps Treading Water - Good for Short-Put Investors
Dell Technologies (DELL) stock has been in a trading range since its fiscal Q2 results on Aug. 29. However, this benefits cash-secured short-put investors. Put premiums are high - ideal for this option income play.
DELL is at $121.64 in midday trading on Monday, Oct. 28. This is close to its July 23 price of $125.85.
The Barchart graph below shows that DELL stock has been in a narrow trading range. It reached a high of $164.30 on May 29 and a low of $86.93 on Aug. 7, right before its Q2 earnings release. But since then the stock has been flat.
That is ideal for investors who do cash-secured short-put option plays. This is because, on the one hand, the stock is worth significantly more, but on the other, put option premiums are high.
DELL Stock is Cheap
That creates a great income opportunity for selling short out-of-the-money (OTM) put options in nearby expiry periods. I discussed this in my last Barchart article on Sept. 30, “Dell Technologies Stock Still Looks Cheap to Analysts.”
In that article, as well as my Sept., 3 article, “Dell Technologies Inc. Disappoints - But DELL Stock Could Still Be a Bargain,” I showed that DELL was worth much more. I showed that DELL could be worth $148.86 per share.
This is based on a 5% free cash flow (FCF) margin, a $104.5 billion 2025 revenue forecast, and a 5% FCF yield metric. That resulted in a $5.225 billion FCF forecast (i.e., 0.05 x $104.5b) and a $104.5 billion market cap estimate (i.e., $5.225/0.05).
Since then, analysts have raised their 2025 revenue forecast to $105.11 billion. As a result, FCF could reach $5.2555 billion and its market cap could be $105.11 billion. That is 26.3% greater than its present $83.22 billion market cap today.
In other words, DELL could be worth as much as $153.63 per share (i.e., 1.263 x $121.64 per share).
Analysts also agree that DELL is undervalued. For example, Yahoo! Finance says the average price target is $147.06 and Barchart's survey shows a mean target of $147.79.
One way to play this is to sell short out-of-the-money (OTM) put options in nearby expiry periods.
Shorting OTM Puts Works Here
For example, in my last articles, I recommended shorting OTM puts given the high yields that could be made. In the Sept. 30 article, I recommended selling short $110 strike price puts (6.33% below the trading price) for $2.24 expiring on Oct. 25.
That provided a 2.036% yield (i.e., $2.24/$110) and the stock closed at $122.55. This means the put option expired worthless. The investor not only kept the income, but had no obligation to buy shares at $110.00.
The same thing happened with the prior article recommendation for a 2.219% 3-week OTM short-put play.
So, it makes sense to do the same thing with a new 3-week away short-put play. For example, look at the Nov. 22 expiration period, 25 days from today.
It shows that the $114.00 strike price put option has a bid-side premium of $2.48 per contract. That provides an immediate 2.122% short-put yield play (i.e., $2.48/$114.00).
This strike price is over 6% below today's trading price. That provides good downside protection and also a potentially attractive buy-in price even if the stock falls to this level and the contract is assigned.
Moreover, the delta figure implies it could move just 26.4 cents for a $1.00 move in the underlying trading price. That is close to the put option plays we recommended which were successful.
The bottom line is that DELL stock looks cheap and it's stuck in a trading range. One successful way to play this is to sell short out-of-the-money (OTM) put options in nearby expiry periods.
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- Deere & Company's Q4 2024 Earnings: What to Expect
On the date of publication, Mark R. Hake, CFA 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.
