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Sold ABNB Naked Put

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Airbnb ($ABNB) is a young company by most measures, especially as a publicly traded company. I usually shy away from stocks like this because I like to see a better track record before investing. I made an exception with ABNB because I’ve used their services and think they are going to continue to grow quickly after people feel safe traveling again.

I would’ve made this trade earlier (and did in my IRA), but wanted to catch it on a dip of more than a few dollars. Instead, ABNB kept pushing higher and I gave in today while it was down around $4 on the day. While ABNB was trading at $213.80, I sold one ABNB April $150 naked put for $4.70 and received $469.33 after paying $0.67 in commission. The one I sold in my IRA expires in March and is at the $145 strike. I sold it for $7.00 last week. That shows how fast ABNB has moved higher. 10 days later, with a strike $5 higher, and a month further out on the calendar and I received a lower premium.

Still, I think the risk is worth it. I can earn 3.23% if ABNB stays above $150. That comes out to an annualized gain of 18.47% while I maintain a buffer of 31.5% before I take a loss on a price stumble. Even if the stock drops 29.29%, I’ll earn my full potential gain.

It might be hard to see, but there’s a similarity between this trade and my trade on MJ yesterday. The obvious part is they are both far out of the money naked puts. The more obscure part is that I see it as an eventuality of success. Cannabis might not be legalized for a lot longer than people expect, but the hope should keep the stocks afloat. The same hope will help ABNB. The simple belief that something better is around the corner can do wonders for a good stock story. The marijuana and travel industries have that perpetual hope locked up tight.

Their upcoming earnings call should be ugly and I expect a loss. However, most investors in ABNB will hold onto the belief that much better days are still to come. They are just getting ramped up and I think any dip of 20% will be bought. To reduce my risk, I gave the bigger cushion I referenced above. One of the reasons I chose the $150 strike was that I wanted a solid 30% margin of error in my favor. My cost if assigned would be just over $145, which is in line with the 23.6% Fibonacci line. I think the $160 area, 38.2% Fibonacci line, is more likely to hold support, but with an 18% annualized gain at the lower strike, I thought reducing my risk was wise.

ABNB is a stock I think I could stomach holding long-term if it’s assigned. Of course, I’d look at covered calls to reduce my cost further, but I think it has a good chance of being a Wall Street darling for a while, especially as more people decide they like the idea of avoiding hotel crowds.


Source: http://mytradersjournal.com/stock-options/2021/02/12/sold-abnb-naked-put/


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