Double-Digit Target Return Option Trade at 60% Discount to Current Price

I thought it would be helpful to share an options trade in real time, to give you an idea how it works.  Keep in mind, most junk bonds are yielding around 4% and the 10-year Treasury sits at about 1.7%.  One stock that we like long-term is Lending Club (LC).  This is a fintech company that arranges loans for people and businesses, by matching them with investors.  Last year, they acquired a bank, which has changed the business materially. They are now able to fund loans with extremely low cost deposits, greatly enhancing the company’s profit margin.  Due to financial accounting, the full benefits have yet to properly flow through the balance sheet, but they will over time.  We’ve successfully invested in the company in 2021, and now the stock has pulled back a bit from its high’s and trades at around $22.26.  This is still up quite dramatically from where it was a year ago, so with our concerns with the overall market, there are some attractive ways to play the stock with options, that are a lot more conservative than owning the stock outright, but are still quite lucrative.

Today we sold $10 January 2023 LC puts for $.94.  On 10 contracts, that is a $940 target profit on a maximum risk of $9,060 in 1 year.  That is a roughly 10.4% return, which is more than double what you can get with junk bonds, but without the interest rate risk. The stock would have to drop by just under 60% for you to get exercised, and from those levels we would love to own the stock, which would be your worst case scenario.  You can see the tables and graphs of how this trade works on the image at the top of this email.  I don’t think the overall indices will come close to averaging 10% returns from current levels, over the next 5 years, so you can see how attractive this type of strategy is, which very few other companies or advisors do.  If you are sitting on excess cash that you’d like to target higher returns on, please don’t hesitate to let us know as there is a ton of great opportunity with this volatility that we are starting to see.  If you have any questions, please don’t hesitate to ask