Earning Income Through a ‘Buy-Write’ Options Strategy on a Promising Tech Stock

Generating income using a 'buy-write' options strategy on a tech stock with improving prospects

Unlocking Income Potential with a "Buy-Write" Strategy: A Closer Look at TD Synnex

Are you looking to enhance your investment portfolio while generating income? At Extreme Investor Network, we believe understanding strategies like the "buy-write" can help bring valuable income to your investments. This blog delves into this approach and presents a compelling opportunity with TD Synnex (SNX), a key player in the global technology distribution landscape.

Understanding the "Buy-Write" Strategy

A "buy-write" is a versatile options strategy that combines purchasing shares of a stock while simultaneously selling call options on those same shares. This creates a unique opportunity to earn premium income from the options sold while holding a position in the underlying stock. It’s particularly appealing in a range-bound market, where stock prices do not exhibit strong upward momentum.

When considering a "buy-write," investors should take note of several critical rules:

  1. Expiration Timing: Opt for options with an expiration of less than 90 days. Be mindful of significant upcoming company events, like earnings reports, which can lead to increased volatility.

  2. Strike Selection: Choose a strike price that allows for potential upside participation. This ensures you stand to gain should the stock appreciate beyond your set target.

  3. Justifying Premiums: The premium received for selling the call option should make sense relative to the trade-off of capping potential stock gains. You want to ensure that the income earned compensates adequately for relinquishing some potential upside.
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Spotlight on TD Synnex (SNX)

At the forefront of a dynamic tech distribution sector, TD Synnex emerged from the merger of Tech Data and Synnex Corporation in 2021. With its operations spanning North America, Europe, Asia-Pacific, and Latin America, TD Synnex is poised to benefit from increasing demands in technology infrastructure modernization, cloud computing, and the adoption of hybrid work models.

Market Demand & Financials

As businesses increasingly rely on IT hardware and services to enhance remote collaboration and security, TD Synnex is positioned strategically within this growth trajectory. With emerging trends such as edge computing, IoT, and the rising need for advanced cybersecurity solutions, the company has the potential to draw investors’ attention.

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While the total return for SNX shares since its merger has been a modest 4.3%, analysts, like Ashish Sabadra from RBC Capital, are optimistic about the company’s outlook. With consensus estimates projecting revenue growth of 5.6% for the fiscal year ending November 30, 2025, SNX could be on the brink of a turnaround. The projected earnings per share (EPS) of $12.80 signifies a 10% year-over-year net income growth.

Practical Trade Example

Considering the above factors, let’s look at a specific trade example for deploying the "buy-write" strategy with TD Synnex:

  1. Buy 100 Shares of SNX: As of current pricing, TD Synnex shares are trading at a reasonable multiple of 9.5x forward earnings, significantly below the S&P 500 average of over 25x.

  2. Sell the February 21, $130 Call Option: Offering a 6.5% upside through February expiration, this call option could yield over 2% of the current share price in premium. Although the premium may decrease post-earnings release, the potential to collect around 1.8% for the call option 5% out of the money remains attractive.
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Conclusion

Implementing a "buy-write" strategy with TD Synnex not only positions you for potential capital appreciation but also provides a steady income stream. As always, we advise investors to conduct thorough research and consider their individual circumstances before making moves in the market.

At Extreme Investor Network, we are committed to arming you with insights to navigate investments effectively and achieve your financial goals. Stay tuned for more updates, strategies, and investment opportunities tailored to help you excel in your journey to financial freedom.

Disclaimer

The content provided here is for informational purposes only and does not constitute financial advice. Always consult a financial advisor tailored to your unique circumstances before making investment decisions.