Dell Inc. (DELL) cash-secured put

After investors were underwhelmed by the last two quarterly earnings reports from Dell Inc. (NASDAQ: DELL), the stock was taken from its 52-week high of $17.26 down to just below $13.00 in both December and February. This double-bottom on the chart seems to have both bullish fundamental and technical investors ready to take the stock higher and it is one of the strongest technology gainers today in a quiet market. For option investors looking to take advantage of a potential rally in Dell shares, this cash-secured put idea lets you take the risk of buying the stock at the discounted price of $11.50 while keeping the $1.50 you collect up front if DELL stays above $13.

DELL Cash-Secured Put Trade Details:

DELL is trading at $13.60, up roughly 2.6% today.

Cash-Secured Put –

• Sell the DELL May 13 put for $1.50 or more
• Net credit of $1.50
• For every contract, set aside $1,150 in cash: [(13 - 1.50) * 100]

Securing the sold put with cash means the capital is available to buy the shares if assigned. At this point, you’ll have purchased the DELL at an effective price of $11.50, or 18.3% below their current price.

By opening a free virtual trading account with OptionsHouse, you could build a profit/loss diagram to help visualize this trade.

Profit/Loss Details:

Maximum potential profit: $1.50 per contract (the premium collected) minus commissions.

Maximum risk: $11.50 (the strike price minus the premium collected). Return on risk for this trade is 7.6% in 102 days.

Breakeven: $11.50 (the strike price minus the premium collected).

For more on DELL:

A Long-Term Bull Put Spread Trades on Dell (NASDAQ: DELL)

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