Etsy Stock Making A Bullish Comeback; Here’s How To Buy Shares For A Discount | IBD | Summary and Q&A

TL;DR

Learn how to potentially buy Etsy stock for less than the current price by using a cash-secured put option strategy.

Key Insights

• 🪛 Etsy stock had a significant rebound in the second half of 2022, driven by better earnings.
• 😥 The stock is currently trading just below a cup base buy point and is part of the internet retail industry group.
• 🌸 Cash-secured put option strategies are a less bullish approach to buying stocks and can provide a premium to offset potential losses.
• ❓ Selling put options is an accessible options trading strategy for investors.
• ™️ The trade analyzed involves selling a March put option with a strike price of $130 for a premium of around $10.30.
• ↩️ If the stock stays above $130 at expiration, the put option expires worthless, resulting in a return on capital at risk of 8.6% or 52.3% annualized.
• 🌸 The main risk is similar to outright stock ownership, as a quick decline in the stock price can result in losses.

Transcript

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Questions & Answers

Q: What is a cash-secured put option strategy?

A cash-secured put option strategy involves selling put options and setting aside enough cash to buy the stock if assigned. It allows investors to potentially buy the stock at a lower price and collect premiums.

Q: How does the cash-secured put strategy work for buying Etsy stock?

By selling a March put option with a strike price of $130 for around $10.30, investors receive a premium and set aside enough cash to buy 100 shares at $130 if the stock falls below that price by expiration.

Q: What is the potential return on investment for this strategy?

If the stock stays above $130 at expiration, the put option expires worthless, and the investor keeps the premium, resulting in an 8.6% return on capital at risk, or roughly 52.3% annualized.

Q: What is the main risk with the cash-secured put strategy?

The main risk is if the stock falls quickly, causing potential losses. However, the premium received from selling the put option helps offset some of the losses.

Summary & Key Takeaways

• Etsy stock had a strong comeback in the second half of 2022, recouping most of its losses from earlier in the year.

• A cash-secured put option strategy allows investors to potentially buy the stock at a lower price by selling put options and setting aside enough cash to buy the stock if necessary.

• The trade involves selling a March put option with a strike price of $130 for around $10.30, receiving a premium that can help offset potential losses.