Dell Technologies stock (DELL) has been in a trading range since its fiscal Q2 results on Aug. 29. This is beneficial for cash-secured short-put investors as put premiums are high, making it ideal for this option income play. As of Monday, Oct. 28, DELL is at $121.64 in midday trading, close to its July 23 price of $125.85. The Barchart graph shows that DELL stock has been in a narrow trading range. It reached a high of $164.30 on May 29 and a low of $86.93 on Aug. 7, just before its Q2 earnings release. Since then, the stock has remained flat. This is ideal for investors who engage in cash-secured short-put option plays as the stock is worth significantly more while put option premiums are high.
DELL stock is considered cheap. This presents a great income opportunity for selling short out-of-the-money (OTM) put options in nearby expiry periods. This was discussed in my previous Barchart article on Sept. 30, titled ‘Dell Technologies Stock Still Looks Cheap to Analysts’. In that article and also in my Sept. 3 article, ‘Dell Technologies Inc. Disappoints – But DELL Stock Could Still Be a Bargain’, it was shown that DELL is worth much more. It was demonstrated that DELL could be worth $148.86 per share. This is based on a 5% free cash flow (FCF) margin, a $104.5 billion 2025 revenue forecast, and a 5% FCF yield metric. This results in a $5.225 billion FCF forecast (i.e., 0.05 x $104.5b) and a $104.5 billion market cap estimate (i.e., $5.225/0.05). Since then, analysts have raised their 2025 revenue forecast to $105.11 billion.
As a result, the free cash flow (FCF) could reach $5.2555 billion and its market cap could be $105.11 billion. This is 26.3% greater than its current market cap of $83.22 billion today. In other words, DELL could be worth as much as $153.63 per share (i.e., 1.263 x $121.64 per share). Analysts also agree that DELL is undervalued. For instance, Yahoo! Finance states that the average price target is $147.06 and Barchart’s survey shows a mean target of $147.79. One way to take advantage of this is to sell short out-of-the-money (OTM) put options in nearby expiry periods. Shorting OTM Puts Works Here. For example, in my previous articles, I recommended shorting OTM puts due to the high yields that could be obtained. In the Sept. 30 article, I recommended selling short $110 strike price puts (6.33% below the trading price) for $2.24 expiring on Oct. 25.
Investing in Dell Technologies stock has been afloat, presenting a lucrative opportunity for short-put investors. The stock, which closed at $122.55, offered a 2.036% yield with a put option that expired worthless, allowing investors to retain their income without any obligation to purchase shares at $110.00.
This success was previously mirrored in a 3-week out-of-the-money (OTM) short-put play, which yielded a 2.219% return. Building on this strategy, a new 3-week OTM short-put play is recommended for the Nov. 22 expiration period, just 25 days from today.
During this period, the put option at a $114.00 strike price presents a bid-side premium of $2.48 per contract, translating to an immediate 2.122% short-put yield (i.e., $2.48/$114.00). This strike price is over 6% below the current trading price, offering robust downside protection and an attractive buy-in price should the stock decline to this level and the contract is assigned.
Dell Technologies stock is currently experiencing a period of stability, with the delta figure indicating a minimal movement of 26.4 cents for every $1.00 change in the underlying trading price. This characteristic aligns with the put option strategies we’ve previously recommended, which have proven to be successful in the past.
The stock appears to be undervalued and is confined within a specific trading range. For investors looking to capitalize on this situation, one effective approach is to sell short out-of-the-money (OTM) put options with expiry dates in the near future.
