Trade this “Amazon-Proof” Stock for Income Using Options

Blue Chip Stocks, M&A, Options

Earn a steady income from trading this one stock that is all but “Amazon-Proof.” While we’re seeing many stocks get hit hard on the fears of Amazon stealing their business, you can count on trading this stock to help you earn income from your savings. 

In the wake of Amazon’s (NASDAQ: AMZN) purchase of Whole foods Market (NASDAQ: WFM), many analysts are wondering what the next industry is for AMZN to disrupt. After all, the groceries industry was once considered untouchable by online companies. (Does anyone remember the spectacular failure of Webvan?)

There is no doubt that Amazon is a retail force. It’s not just mom and pop shops who should be concerned. Even the Walmarts (NYSE: WMT) of the world are losing significant market share to the AMZN freight train.

And, if Amazon can successfully alter the groceries business with its ultra-thin margins, then is any retail business truly safe?

As a matter of fact, Amazon is even launching its Prime Wardrobe service, which allows Prime members to try on clothes before purchasing (with a quick and easy pickup for returns).   Add clothing to the list of industries that weren’t supposed to be replaced by online providers.

Two industries which currently aren’t being significantly impacted by Amazon are healthcare products and home improvement. I could see those two industries holding online retailers at bay for an indefinite period of time. However, one of the primary reasons why they’re safe is because they’re both already dominated by massive players.

For retail-level healthcare, you’re basically talking about corner drugstores. For all intents and purpose, you only have two players left in the industry, Walgreens (NASDAQ: WBA) and CVS (NYSE: CVS). Of course, home improvement is even more clear cut, with the industry dominated by Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW).

As it turns out, all four of those companies make decent long-term investments. However, you’re not going to outperform the market by purchasing some of the most heavily owned stocks out there. Instead, I like to look for more niche methods for applying my investment thesis.

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In the case of “Death by Amazon”, another group of companies which should be immune to competition is ultra-high-end retailers. That sort of shopping is generally done in person. But, how many of those types of companies are public?

There’s at least one company which fits the bill, Tiffany (NYSE: TIF). The high-end jewelry chain will always rely on walk-in business. (I’m not considering the possibility of being able to visit retail stores in virtual reality – although that’s probably going to happen in the next ten years… maybe.)

Now TIF isn’t exactly cheap right here. However, the company does have very good fundamentals. The stock is already a decent long-term buy. And if it was a bit cheaper, it would be an even easier decision. Hey, that sounds like an ideal cash secured put situation!

Remember, a cash secured put is when you sell puts below the current price of a stock in order to collect income while you’re waiting for the stock to drop. If the stock drops below your strike price, you will get assigned on the shares at your price. Keep in mind, you have to have enough money to cover owning the shares in order to do this strategy.

So, with TIF around $92, let’s look at selling a put about 3 to 6 months out. The options chain doesn’t list anything from August to November. Since August is a bit too close for this strategy, let’s go out to November. With the extra time involved, we can look a full $10 lower for our short strike. If you like the stock at $92, you should love it at $82.50. By the way, you’ll collect $2 (or $200 per option) in order to wait for the stock to hit your strike.

What if it never hits? Well you just keep doing the trade over and over again and collecting money every few months. If you don’t end up owning the stock, how about using its options as a cash machine? With this strategy you get the benefit of betting on a company which should survive “Death by Amazon” and you get to generate cash while you wait.