Stocks and Options » Put

Wells Fargo & Company (WFC) – Sold Jan 27, 2012 Weekly Put

Bill — Tue, 24 Jan 2012 18:11:48 +0000

Yesterday, 1/23/12, I sold 10 WFC Jan 27, 2012 $31 Puts for a net deposit of $554.41 in 5 IRA Accounts and in my Taxable Account. My basis for these FCX varies from $30.39 to $30.54. These transactions represents simple returns of about 1.51% to about 2.01% and annualized returns of about 138.08% to about 183.19% on my potential basis with 4 days to expiration.

FCX rose above my comfort range for selling weekly options. At this time, I prefer FCX to be no higher than $40 and a few cents for the weekly trades. So, casting about for another stock for weekly trading, I settled on WFC as the one with which I am most comfortable. WFC has the added benefit of being lower priced which allows me to trade more contracts. I considered buying the stock and selling Covered Calls at $31 until I saw that I could sell the $31 Puts and acquire the shares at a lower price if they are assigned to me while earning a larger dollar premium. At this time, I fully expect that these shares will be assigned to me and that I will be selling Covered Calls at $31 on the shares next week.

S&P has a 12-month price target of $33 with a Buy recommendation. MarketEdge currently has a price opinion of $26.07 and has a Long recommendation. The 30 Yahoo Analysts have a 12-month price target of $34.08 and a recommendation of 2.1 on a scale where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

Sprint Nextel Corporation (S) – Sold Rolled Out Jan12 Puts

Bill — Thu, 19 Jan 2012 18:08:19 +0000

Today 1/19/12, I BTC 3 S Jan12 $3 Puts and STO 3 Aug12 $3 Puts for a net deposit of $38.45 in an IRA account. My basis for these S shares if put to me would now be about $2.52 plus trading costs. These transactions yield a simple return on my potential assigned price of about 5.07% and an annualized return of about 8.74%, if held to expiration.

I already own 800 shares of Sprint with Jan12 Covered Calls at the $5 strike price on them. My basis for the existing shares is $9.57. At the time I sold the Jan12 Puts I expected that they would expire worthless. It turns out that I was wrong. I also thought that an assignment would be beneficial because it would allow me to average down my total holdings to about $7.69. Upon current evaluation, I see that I am dollars ahead by rolling out these Puts rather that selling Covered Calls on the assigned stock. As it is, I will need to go out to Jan14 to sell the $5 Call or Jan13 to sell the $4 call for a reasonable premium. I may need to sit on Sprint for a time to see if it will recover a bit before selling new Calls on my existing shares.

S&P currently has a 12-month price target of $5.00 for Sprint with a Buy recommendation but a poor (0% accuracy) rating predicting Sprint’s price movement. MarketEdge has a price opinion of $2.77 with a Neutral recommendation and a Fair (40% accuracy) rating prediction Sprint’s price movement. The 29 Yahoo Analysts have a mean 12-month target of $3.83 with a recommendation of 2.7 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

As you may surmise from my comment above, I don’t really desire to continue owing Sprint but also don’t want to have it called away at a loss. There are no dividends so, unless I can make a decent return from the option premiums, I expect it will be out of my portfolio one day.

BP plc (ADR) (BP) – Rolled out Jan13 Put

Bill — Fri, 30 Sep 2011 15:56:24 +0000

Today, 9/3011, I BTC 1 BP Jan13 $45.00 Put and STO 1 Jan14 45 Put for a net deposit of $218.47 in my taxable account. My basis for these BP shares, if put to me, would now be 37.27, excluding trading costs. These transactions represent a simple return of about 5.86% and an annualized return of about 2.51% on my prior basis, if held to expiration, with 851 days to expiration.

I sold the original Puts in this series when the BP well in the Gulf sank. My original strike price was $50. My belief was that the price of BP was being punished much more than need be. Since the original sale I have now rolled out and down a few times, picking up some additional premium each time. I believe that this options will expire worthless one because I believe that the price of oil will trend upward in the long term. I actually thought this option would have expired worthless already but I guess the outlook for the world economy had dampened the outlook for oil stocks in general.

I still think my thesis about the BP price is correct but decided to mitigate my risk a little more and capture some additional cash by rolling the Jan13 Puts out now. I really would not mind owning some additional BP but if Put to me in this account the purchase would be on margin and I am trying to avoid doing that to any great extent.

S&P currently has a 12 month price target of $58 with a Hold recommendation. MarketEdge has a price opinion of $39.69 and a Neutral recommendation. The 12 Yahoo! Analysts have a 12 month price target of $53.70 and a recommendation of 2.0 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

FORD MOTOR (F) – Sold Oct11 Put

Bill — Tue, 20 Sep 2011 22:13:55 +0000

Today, 9/2011, I sold 1 F Oct11 10 Put for a net deposit of $17.24 in an IRA account. My basis for these F shares, if put to me, would be about $9.37, plus trading costs. This transaction represents a simple return of about 1.84% and an annualized return of about 20.94% on my potential basis. There are currently 32 days to expiration.

This is the second month in a row that I have sold $10 puts on F in this account and as is my habit, I consider this a continuing series and accumulate the option premiums on the series to reduce my potential basis. I don’t know if these Puts will expire worthless or not but if assigned to me they will reduce my basis on my total F holdings in this account. I already own 100 shares in this account with a basis of $15.76 and waiting to write new Covered Calls on them.

The 15 Yahoo! Analysts have a 1 year mean price target of $18.03, down from $19.57 last month, with a recommendation of 2.0, up from 2.1, where 1.0 is a Strong Buy and 5.0 is a Strong Sell. S&P has a 12 month price target of $17.00, down from $18.00 last month, with a continuing Buy recommendation. MarketEdge has a price opinion of $10.62, down from $14.01, but they have raised their recommendation to a Neutral from an Avoid recommendation.

F does not currently pay a dividend but I believe I have heard comments that they may begin to pay them again late in 2011 or in 2012. As such, F does not meet my general investment guidelines. However, the return on the option premiums will make up for the dividends for now.

Bank of America (BAC) – Sold Sep 2, 2011 Calls

Bill — Thu, 25 Aug 2011 14:15:09 +0000

Today, 8/25/11, I sold 3 BAC Sep 2, 2011 $8 Puts for a net deposit of $92.73 in taxable account. My basis for these BAC shares would be about $7.75 if Put to me. This transaction represents a simple return of about 3.99% and an annualized return of about 181.91% with 8 days to expiration.

This sale is for the weekly options which is why they expire in 8 days. I am taking a small risk of assignment here but with the news this morning that Warren Buffet has invested $5 billion dollars in BAC and his positive comments about the company I think this is a good calculated risk. Although, the stock is falling off a little as I write this to $8.08. If assigned I will probably sell the shares because I will be using margin to buy them unless I decided to move some additional funds into this account.

S&P currently has a 12 month target of $9.00 for BAC with a 3 star (Hold) rating. MarketEdge has a price opinion to $7.19 has an Avoid rating. The 25 Yahoo analysts have a 12 month price target of 13.60 with a recommendation of 2.3 where 1.0 is a Strong Buy and 5.0 is a Strong Sell. Of course, I expect that all of these price targets may be revisited and increased in the next few days.

BAC currently pays a paltry .01 quarterly dividend. It has paid a .64 quarterly dividend as recently as September 2008. I believe that BAC will eventually raise its dividend again. I don’t know if it will be back to the .64 level but certainly it should be well above what it is now. I continue to believe that BAC will be a strong winner for me one day, or maybe I should say someday in the future.