Yesterday, 7/26/10, I sold 2 MO Aug10 22 Puts for a net deposit of $64.46 in an IRA account.  If assigned to me, my basis for these MO shares would be 21.68, excluding trading costs.

This trade provides a 1.46% simple yield and an annualized 21.91% yield on my potential assigned basis.  The annualized yield appears high but it is because there are only 24 days left to expiration.

MO was trading around 21.95 when I made this trade and is trading up a little today at 22.06 as I write this.  I made the trade for the annualized yield for the short term view.  However, I already own 200 shares of MO at a basis of 35.48 with existing Covered Calls on them for Jan11 at the $20 strike price.  I would not mind if the Aug Puts are assigned to me.  If they are I will close out the Covered Calls on the existing MO shares, combine the new ones for a total of 400 shares at a reduced basis and sell new Covered Calls.

MO pays a good dividend of .35 per quarter for an annualized return of 6.35% at the current market price of 22.06.  Of course, the return on my basis is lower but still acceptable at 3.95% on the last payout.

I consider MO a part of my long term core holdings and will continue to accumulate it or sell Puts on it when I can do so below my average basis.