CoreWeave (CRWV) stock broke back above the 50-day moving average on Monday and is showing signs of accumulation. CoreWeave is also a stock with high implied volatility, which means premiums are also bulky. And that can be great for option sellers.
For traders wanting to take advantage of the high volatility of CoreWeave stock, a cash-secured put could be an attractive way to potentially buy the stock for a discount.
Let’s take a look at how a cash-secured put trade might look on CoreWeave.
As a reminder, 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.
It’s important that anyone selling puts understands that they may be assigned 100 shares at the strike price.
How To Handle This Cash-Secured Put
Let’s assume we’re happy to buy 100 shares of CoreWeave stock at 115 any time between now and Oct. 17. That’s just under the current value of the 50-day line.
Selling an Oct. 17 put at 115 would generate around $1,035 in premium. The put seller would have the obligation to purchase 100 shares of CoreWeave stock at 115 if called upon to do so by the put buyer.
Calculate the break-even price for the trade by taking the strike price less the premium received. Meanwhile, that gives a break-even price of 104.65, or 10% below the current price (around 116.34 as of this writing).
If the stock stays above 115 at expiry, the put expires worthless, leaving the trader with a 9.9% return on capital at risk. That works out to around 113% on an annualized basis.
The main risk with the trade is similar to outright stock ownership. If the stock falls sharply, the trade suffers a loss. But investors partially offset the loss via the premium received for selling the put.
The maximum loss on the trade would occur if CoreWeave stock fell to zero. In that case, the trade loses $10,465, but most investors would cut their losses before then.
Ratings for CoreWeave Stock
Cash-secured puts are a fantastic way to generate a high return on stocks that the investor is happy to own. If the put does get assigned, the investor takes ownership with a reduced cost base. Further, the trader can begin selling covered calls to generate additional income from the position.
Coreweave has already announced second-quarter earnings, so there should be no earnings risk with this trade.
Investor’s Business Daily gives CoreWeave stock a Composite Rating of 57 out of a best-possible 99, an Earnings Per Share Rating of 2 and a Relative Strength Rating of 97. According to IBD Stock Checkup, CoreWeave ranks 43rd in its ndustry group.
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, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
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