With three COVID-19 vaccines getting close to approval and production, there truly is an end in sight to this year's virus and lockdown nightmare. The question for traders is what to buy as the economy roars back to life.
After getting smacked down in 2020, you can bet that the public is itching to get back to normal. That means unleashing huge pent-up demand for goods, services, business upgrades, and travel.
And our experts can help you find the biggest opportunities right now.
Today, we'll show you the best call and put options trades our experts have uncovered.
Options trading is the best way to cash in on the fast-changing environment. With lower up-front cost, options reduce your risk. That means they can be part of a conservative strategy that anyone can use to make money.
Plus, their upside potential can multiply the gains you'd see from simply trading the stocks themselves.
Money Morning Quantitative Specialist Chris Johnson and Options Trading Specialist Tom Gentile will show you two different ways to profit from the recovery - one uses calls and the other uses puts.
Let's dig in.
Chris has been focusing on retail for a while and has a way to profit ahead of Christmas. While he has already shown his subscribers online retailer trades like Etsy Inc. (NASDAQ: ETSY) and Stitch Fix Inc. (NASDAQ: SFIX), today he is looking more behind the scenes. Retail infrastructure is what holds up the rest, and that is why digital payments are so important.
"Not only is this a prime 'COVID-19 Christmas' profit play," he wrote, "but it's also cashing in on current events, namely the rising wave of support for small business as citizens of the world band together in an effort to support local economies."
The trade Chris is looking at is software primarily geared toward providing financial solutions to small businesses.
Similar to PayPal Holdings Inc. (NASDAQ: PYPL), PagSeguro Digital Ltd. (NYSE: PAGS) is a Brazilian company that offers payment services for online shopping. Thanks to the pandemic, online shopping has carried the load for months. This will continue through the holiday shopping season, as a vaccine distribution likely won't reach everyone for several more months. Even after the pandemic passes, we've all gotten more used to shopping online and will probably continue to do so.
When Chris first brought PAGS to our attention, the stock was preparing for a technical breakout above $46 per share. That breakout happened last week, but that does not mean we missed the boat. He prefers buying the stock at $46, but the chart looks strong, and the shopping theme is even stronger.
You can buy at-the-money call options with a Feb. 19, 2020, expiration to make the most of the upside potential. With the stock trading at about $47.68 per share Monday morning, that would mean the $45 or $47.50 strike prices.
If you're willing to wait for dips to maximize your upside, Chris says to look for the Feb. 19 $42.50 call to buy around $5.70.
But that's not the only way to make money trading options right now...
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Money Morning's options trading specialist, Tom Gentile, is looking a little further ahead to opportunities in 2021 for when COVID-19 is in the rearview mirror. Using his proprietary Money Calendar, he looks at the top 250 stocks to find real winners. It crunches millions of data points, looking over 10 years of performance to find repeatable, tradeable, bankable patterns in them.
Right now, an old familiar name is popping up on his screen - Cisco Systems Inc. (NASDAQ: CSCO). This premier provider of network backbone systems had a rough year, and although it is up about 24% from its March pandemic lows, it is still down 14% on the year.
However, as business ramps up next year, spending on infrastructure technology (IT) is going to improve with it. That will finally become the wind beneath Cisco's wings.
Here's what Tom's Money Calendar says about Cisco: The Money Calendar shows Cisco has closed out nine of the past 10 years higher; this is the only year it might not be likely to do that. Cisco is also trading around 40% below fair value, and the company recently reported it expects to grow EPS by 4.8% by the second quarter of 2021.
That means that buying shares of CSCO at current levels (around $42.50) and holding it for a year or so would be a good way to go. And you collect a 3.5% dividend while you wait for the double-digit price gain to unfold. Tom thinks it will be trading at $50 a year from now.
But using options can make this an even more lucrative way to own the stock.
Tom is talking about selling the CSCO Dec. 18, 2020 $38 put.
Here's how that works.
When you sell, or write, a put option, someone is paying you for the right to sell you the stock at the strike price. That means you get paid the premium right away. Plus, if CSCO drops down to the strike price, then you get to buy the stock at a lower price than you'd pay today. It's really a win-win if you want to own the stock.
The risk is the stock could simply continue to trade higher, and you don't get to buy it at the lower price. But you still get to keep the income from selling the option. It's just one way of using options to control your risk and amplify your gains.
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