Yesterday, 8/24/10, I BTC 1 BP Oct10 49 Put and STO 1 Jan12 47.50 Put for a net deposit of $140.43 in my taxable account.  My basis for these BP shares, if put to me, would now be 44.93, excluding trading costs.  These transactions represent a simple return of about 2.69% and an annualized return of about 1.99%.  The annualized return is lower because the new option expires more than 1 year out.

The gulf well is not longer leaking and there is increasing evidence that the free oil that may still be in the gulf is being taking of by natural action.  There is apparently a stipulation that anybody that accepts payments from the $20 Billion fund that BP is funding will need to agree that they will not sue BP for additional damages.  All-in-all, I think BP is in a much better position now than when I originally sold the Oct Puts.

With all that, BP is currently falling along with the rest of the market and the oil stocks.  Compounding the problem is the continuing build in the oil supply with a resulting decrease in the price of a barrel of oil.

I still believe my original thesis is correct.  However, with BP continuing to trade lower, I decided to roll out and down the Oct10 BP Put I previously sold.  Doing these trades allows me to bank an additional $140.93 and reduce my potential basis by a combined total of $2.90 per share.  I suspect that at some time, well before Jan12, I will be able to buy back the Jan12 Put and sell something with a shorter time frame although at a higher strike price.

Yesterday, 8/24/10, I sold 1 DD Sep10 40 Put for a net deposit of $107.22 in my taxable account.  My basis for these DD shares, if put to me, would be 37.97, excluding trading costs.

My DD Aug10 40 Put expired worthless.  I decided to place the same trade for September and am treating this as an extension of the prior trade by continuing to reduce my basis by the accumulated premium options from the prior trade.

The various analysts are all over the board regarding DD, some are long, some are neutral and others are less enthusiastic. There does seem to be some consensus in that DD is fairly valued around $38 at this point. 

This option trade produces about a 2.6% simple return and about a 41.4% annualized return on the potential assigned cost (excluding prior premiums) if Put to me.  The annualized return appears so high because there are only 24 days left to expiration.

DD pays a 41 cent quarterly dividend for about a 4.14% annualized return at the current price.  Add the option premiums available to the dividends and there is a pretty good annual return on the investment if it is assigned to me.  On the other hand, I can certainly roll out the Put in the next 3 weeks if it appears that the price may pull back more than I am willing to accept in order to reduce my potential future basis.

Today, 8/13/10, I sold 2 WIN Feb11 10 Puts for a net deposit of $80.47 in an IRA account.  My basis for these WIN shares, if put to me, would be 9.60, plus trading costs.

This option trade produces about a 4.0% simple return and about a 7.71% annualized return on the potential assigned cost.  The annualized return is not as high as some others I have recently made but is still higher than my current average return on my basis of 6.34%.  The reason that I went all the way out the Feb11 and chose the $10 strike price is because it fit into the cash I had available in the account while providing a large enough premium and return to make it worthwhile.

I have been looking at WIN for sometime now.  Jim Cramer has promoted it as a good dividend stock with room to grow.  One of the panelists on CNBC’s Fast Money show called it out recently.  And then today, I read a Motley Fool article that called WIN out as a good dividend stock.  After all of those references and additional research I finally decided to do something with WIN.  It’s like the gods were speaking to me.

WIN pays a 25 cent quarterly dividend for about an 8.87% annualized return on its current price.  Add an option premium now and then to the dividends and there is a pretty good annual return on the investment if it should assigned to me.  However, at this time I suspect that I will not be assigned this stock.  S&P has a 12 month price target of $15 and a 5 star rating on WIN.  On the other hand, with potential tax rates on dividends rising in 2011 with the probable expiration of the Bush tax cuts, stock like WIN may lose some of their luster and experience a price pull back.  Time will tell.