Finding the best income stocks to trade during COVID-19
November 13th, 2020
Take Zoom Video Communications (ZM), for instance. Its video communications platform has exploded in popularity since the start of the pandemic and the company’s stock exploded as well. Coming into this week, shares were up 635% for the year.
But after Pfizer (PFE) announced its COVID-19 vaccine candidate was found to be more than 90% effective, the stock lost nearly a fifth of its value in a week.
Chewy (CHWY), another pandemic favorite, dropped 10.6%, while Peloton Interactive (PTON) cratered 19.7%.
Do I think this was an overreaction? Absolutely.
This week we saw the daily new coronavirus case count surpass 150,000, driven by a record number of infections in more than a dozen states. There is a long road between where we are now and a fully vaccinated population. Zoom’s clients aren’t going anywhere. Nor are Chewy’s customers or Peloton’s users.
Investors overreacting is nothing new. I think we’re likely to see these and other pandemic stocks resume their uptrends.
The upside to the volatility in these names is that it creates outsized option premiums.
Case in point was this week’s Options Income Blueprint vtrade on PTON.
On Tuesday morning, the stock was down almost 22% already for the week. With shares at $98.21, we sold the PTON Nov Week Two (11/13) 88 Put for $0.50, or $50 per contract.
We closed the position on Thursday, giving back just $0.06 and booking a profit of $44 per contract for a 0.5% return in three days, or 61% on an annualized basis.
This was actually our seventh successful trade on Peloton in a row this year. Traders who sold just one contract of each position could have made $381 in cash.
And just like the coronavirus isn’t going anywhere, neither are PTON’s premiums, so I suspect we’ll be trading it again very soon.
In addition to the Peloton trade, we also booked successful trades on D.R. Horton (DHI) and Bank of America (BAC), two more repeat winners.
We’ve traded homebuilder D.R. Horton twice so far this year, earning a potential $148 in income. And we’ve booked eight winning trades on Bank of America (BAC) in 2020, booking a potential $303 in income.
This is why I preach trading the familiar.
My job is not to find the most income stocks to trades. It’s to find the best income stocks to trade.
And when I’ve found a great income stock, I stick with it.