Navigating Market Volatility with DSM-Firmenich and Duolingo

Welcome back to my monthly options update. As I continue my journey toward a consistent €800 monthly income from option premiums, February and March have provided some masterclasses in market sentiment, “close calls,” and the importance of a margin of safety.

DSM-Firmenich: Dancing on the Edge

My recent trade on DSM-Firmenich was another nail-biter. The put option with a €59 strike expired on February 20th, and for the second time in a row, it was a very close call. Ultimately, the option expired worthless, allowing us to pocket a €42 premium.

However, the underlying fundamentals are currently a bit lackluster:

  • Earnings Disappointment:Recent quarterly results didn’t impress the market. Specifically, the divestment to CVC was sold on terms that weren’t particularly favorable.
  • Competitive Headwinds:The stock remains in a clear downtrend. There are growing concerns that the company is losing market share to major competitors like Givaudan.

The Current Trade:

Despite these headwinds, I’m giving the company the benefit of the doubt for now. On February 23rd, right after the previous expiry, I wrote a new put with a €56 strike (expiring March 20th) for a €54 premium.

Interestingly, the stock is currently trading slightly “in the money.” If I get assigned this time, my entry price will be significantly lower than the €64 strike I started with. This illustrates how rolling or writing new puts at lower strikes can effectively lower your “break-even” point over time.

Duolingo (DUOL): High Stakes and High Premiums

Following their quarterly results, Duolingo experienced a violent price correction, dropping from $117 to $95. The market reacted sharply to news that user growth is slowing and word-of-mouth marketing seems to be losing steam.

Why I made the trade:

The company is transparent about investing heavily in long-term growth at the expense of short-term financials. While the SaaS (Software-as-a-Service) sector is currently under pressure, I believe the sell-off is somewhat overdone.

I wouldn’t mind owning the stock, but in this volatile climate—exacerbated by Middle East tensions—I wanted a significant margin of safety.

The Strategy:

  • Strike Price:$75 (Expiry May 15th).
  • Safety Buffer:At a $75 strike, the stock has to drop an additional 21% from the $95 level before I am exercised.
  • The Reward:I collected a substantial $700 premium.

Because the expiry date falls after the next earnings report (May 13th), the Implied Volatility (IV) is very high. This is why the premium is so lucrative. However, it also means that even if the stock remains stable, a large portion of that premium won’t be “earned” through time decay until the uncertainty of the next earnings call has passed.

Scaling Up: The Road to €800/Month

I am the first to admit that my current trade volume isn’t yet enough to hit my €800/month goal. To bridge this gap, I am currently finalizing a custom stock option screener.

This tool will allow me to identify opportunities across the market in a much more systematic and disciplined manner. My goal is to start screening interesting US-listed companies for put-writing opportunities starting in April.

Market Outlook:`

With the VIX (Volatility Index) currently exceeding 30 due to geopolitical uncertainty, option writing has become significantly more attractive. High volatility equals higher premiums, and with the right screening tools, I hope to capitalize on these “fear spikes” while maintaining a strict margin of safety.