A “buy-write” is an options strategy for generating income. I’ll review some rules of thumb for the strategy and identify a strong candidate to apply it to this week. TD Synnex (SNX) , a global information technology distributor and solutions provider formed in 2021 through the merger of Tech Data Corporation and Synnex Corporation, reports earnings beforet the Friday. The company is a middleman in the tech ecosystem, connecting IT hardware, software, and services vendors with resellers, system integrators, and end customers. It operates in North America, Europe, Asia-Pacific, and Latin America. With increasing demand for IT infrastructure modernization, cloud computing, and software-as-a-service (SaaS), companies adopting hybrid work models drive demand for IT hardware, security, and collaboration tools. Growth in edge computing and Internet of Things (IoT) devices supports the demand for distributed computing and connectivity solutions. Rising cybersecurity threats create opportunities for TD Synnex to distribute and support advanced security solutions. Most importantly, emerging technologies, including the adoption of AI, machine learning, and 5G technologies, fuel demand for innovative hardware and software solutions. Despite the company’s strategic position during a period of extraordinary need for technology investment as companies struggled with new technology needs related to AI and the remote working environments many adopted during the pandemic, the company’s earnings growth failed to keep pace with that of the broader market and the shares have essentially traded sideways. Since the merger, the total return for SNX shares has disappointed at 4.3%. According to Ashish Sabadra, an analyst at RBC Capital, the company’s operating performance, buoyed by an improving IT demand environment, could be poised to change. Consensus estimates for YoY revenue growth for the company’s fiscal year ending November 30th, 2025, is now 5.6%. The consensus adjusted EPS estimate for fiscal 2025 is 12.80/share, representing 10% YoY net income growth. Put differently, SNX is trading just 9.5x forward earnings estimates, a steep discount to the S & P 500 trading at > 25x forward earnings. The consensus estimate for free cash flow of > $1 billion, if achieved, would represent a free cash flow yield of almost 10%. Buy-write rules Because TD Synnex options trade very modest volumes, 1) there are no weekly options available, and 2) the bid/ask spreads are a bit wider relative to what one would expect for the most active single-stock options and ETFs. Consequently, investors must be patient, use limit orders, and stick to straightforward strategies such as buy-writes (I’ve provided one example below). One should consider a couple of rules of thumb when identifying a suitable strike and limit price for a buy-write. First, select an expiration of less than 90 days, preferably without a significant catalyst prior, such as earnings. That is not a factor here, as TD Synnex is scheduled to report before the open. Second, select a strike that provides some potential for upside participation if the stock price should appreciate, which is the whole idea when one purchases a stock in the first place. Third, ensure the premium collected justifies giving away some incremental upside. In this case, the $130 strike offers 6.5% upside participation through February expiration, and at Wednesday’s mid-market prices of 2.75, the February $130 call would bring in > 2% of the current share price in premium. The February call premium will likely drop following the company’s earnings release. Still, if you can collect 1.8% or so for a call 5% out of the money or higher, that would still offer an attractive standstill rate of return. Trade example : Buy 100 SNX shares Sell 1 SNX Feb. 21 $130 call DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
