Many analysts would agree that stocks are in a bubble. Can policy makers orchestrate a soft landing, or are they going to blow it? 🙂
And how should you even invest in today’s bubble-like environment?
One strategy I’m using is to sell put options on high quality companies.
It lets me buy the stocks that I like, without overpaying for them. I first determine the fair value of a stock, and then use a put option to make sure if and when I do buy the stock, I pay a reasonable price for it, and not the current overvalued market price.
BlackRock – Fundamental Analysis
In this week’s video I breakdown how to calculate a stock’s intrinsic value using BlackRock as an example.
And demonstrate what a put option looks like. I made $259 from this single options trade with minimal risk! 🙂
Click here to watch the video or see below.
BlackRock is certainly a company worth investing in because it has strong revenue and earnings growth. 🙂
It’s the world’s largest investment management company and I think it will continue to grow over time.
But here’s the problem: The stock is currently too expensive.
BlackRock’s historical P/E ratio is around 19x. But today it is trading at 24x. This makes it about 26% overvalued.
So instead of buying the stock directly at the current inflated price, I have given myself the option to buy it at a more reasonable (lower) price point of $740.
Keep BLK may not fall to this price, and there are other risks involved with this trade. I talk about all the details in the video.
If my $740 put options gets assigned, I will be borrowing $74,000 on margin to pay for the shares.
IB will charge me a 1.58% interest rate on this debt.
Luckily, my dividend yield from BlackRock will be 2.23% which is enough to cover my cost of borrowing.
Let me know if you have any questions. 🙂
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Random Useless Fact:
