Hims & Hers Health, a high volatility stock with high IBD Ratings, is a telehealth company offering a range of health and wellness products and services.
The company faces a backlash over a provocative Super Bowl commercial that criticized the makers of weight-loss drugs and the U.S. health care system.
Sens. Richard Durbin and Roger Marshall have requested the FDA investigate Hims & Hers Health for potentially misleading patients. They say the ad failed to include comprehensive safety and side-effect information.
Hims Cash-Secured Put Trade
High volatility means high option premiums. That can be great for investors that are looking to buy the stock.
One way to take ownership of a stock for less than the current price is via a cash-secured put option trade.
Let's take a look at how a cash secured put might look on Hims & Hers Health.
A cash-secured put involves writing an at-the-money or out-of-the-money put option and simultaneously setting aside enough cash to buy the stock.
The goal is to either have the put expire worthless and keep the premium, or to be assigned and acquire the stock below the current price.
Anyone selling puts must understand they may be assigned 100 shares at the strike price.
Let's assume we're happy to buy 100 shares of Hims & Hers at a price of 40 between now and March 21.
Hims Stock Trade Can Generate $410
Selling a March 21, 40-strike put would generate around $410 in premium. The put seller would have the obligation to purchase 100 shares at 40 if called upon to do so by the put buyer.
The breakeven price for the trade can be calculated by taking the strike price less the premium received. In this case, that's 35.90. That's 17.62% below Tuesday's closing price.
If the stock stays above 40 at expiry, the put expires worthless. That leaves the trader with a very high 11.42% return on capital at risk. That works out to around 109% on an annualized basis. But remember, that risk and return go hand in hand.
The main risk with the trade is similar to outright stock ownership: If the stock falls sharply, the trade will suffer a loss. However, the premium received will partially offset the loss.
The maximum loss on the trade would occur if Hims & Hers fell to $0. That would see the trade lose $3,950. But most traders would cut their losses before then.
Cash-secured puts are a fantastic way to generate a nice return on stocks the trader is happy to own.
Managing Hims Stock Trade
If the put does get assigned, the investor takes ownership with a reduced cost base. The trader can potentially begin selling covered calls to generate additional income from the position.
According to IBD Stock Checkup, Hims & Hers is ranked No. 1 in its industry group. It has a Composite Rating of 98, an EPS Rating of 90 and a Relative Strength Rating of 99.
Hims & Hers Health is due to report earnings on Feb. 24 after the market close.
It's important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
