Today, Feb25, 2010, I sold 2 BVF Jul10 12.50 Puts for a net deposit of $98.46 in an IRA account. My basis for these shares, if Put to me, will be 12.01.
BVF does not have a stellar yield but it does currently return about 2.49%. That is .09 per quarter and is down from .375 per quarter a year ago. I am hopeful that the quarterly dividend will one day approach the prior levels.
I already own 600 shares of BVF in 2 IRA accounts, 200 of which are in the account that I sold these new Puts. I chose to sell the Jul10 Puts for a few reasons.
I already have BVF Covered Calls expiring in this account in July. Lately, I have begun to try to sell new Puts on stocks that I own for the same months that I already have Calls expiring for that stock. That way, if I am assigned the Puts I will be able to sell new Covered Calls on all of the shares owned in that account which reduces per share transaction costs.
My second reason for selling the Jul10 Puts is that the 12.50 strike price is $2 below the current stock price and the option premium provides an additional .55 per share cushion should the stock to fall before I would be underwater if the stock is assigned to me. The current basis for the BVF shares I own in this account is 18.42. The assignment of these shares would reduce my average basis by about $4 per share.
A third reason is that these options provide me with a 10.13% annualized return on the capital reserved to cover the potential assignment. That is not the best return I have ever made but in conjunction with other considerations noted above I am happy with it.