On Friday, 2/2511, I sold 2 YHOO Mar11 16 Puts for a net deposit of $46.47 in an IRA account.  My basis for these YHOO shares, if put to me, would be 15.77, excluding trading costs.

This trade provides a simple yield of about 1.45% and an annualized yield of about 24.00% on my cost if the shares are Put to me.  The annualized return is so high because there were only 22 days left to expiration on these Puts.

I already own 600 YHOO shares in this same IRA account with an average basis of 17.20 and Covered Calls on them for the Jul11 19 strike.  I suspect that these Puts will expire worthless but if not, I will sell Jul11 Covered Calls and add them to my existing 600 shares if they expire worthless to further average down my basis and sell Covered Calls on the lot.

YHOO does not pay a dividend so it does not meet my general investment goals.  However, I am finding that it is not a bad position to trade around…at least not at the moment.  I feel pretty confident that these current Puts will not be assigned to me but you never know.  YHOO! Finance has a 12 month price target of $18.48, up a little from $18.19 back in January, with a 2.5 opinion, up from 2.6 last week, being expressed by the various analysts that contribute there.

I had been hesitant to sell Puts on YHOO in the past but they have been so profitable to me that I am beginning to look upon them as a part of my portfolio even though they do not pay a dividend.  A general rule I am using for selling Puts on YHOO, and other stocks, is that they must be able to reduce the basis when combined with other shares I own it the same account.  At this point YHOO continue to satisfy that rule.

Today, 1/25/11, I sold 6 YHOO Jul11 19 Calls for a net deposit of $225.41 in an IRA account.  My basis for these YHOO shares is now 17.20.  This trade provides a 2.14% simple yield and an annualized 3.94% yield on my basis. 

I had expected that 200 of these YHOO shares to be called away in January because I had written Covered Calls on them at $16.  YHOO ended up closing on Friday at $15.97 so I still have them.  That allowed me to combine them with the other 400 shares that I have owned for some time and thereby reduce my combined basis.  I wrote about that possibility back in August when I sold the Covered Calls on the 200 shares.

I have also sold 4 Feb11 16 Puts on YAHOO in this same account.  At the moment, with YHOO trading at $15.93, I may end up with another 400 shares in a few weeks.  Actually, I will probably roll the Feb11 Puts out to July to coincide with the expiration of the Covered Calls on the existing 600 shares.  That way, if they are still going to be assigned to me I will be able to once again be able to average down and sell new Covered Calls on the new, larger lot.  If this keeps up my return on YHOO option premiums will be large enough that I will want to continue to hold them for the premium income.

YHOO does not pay a dividend so it does not meet my general investment goals.  However, as I suggested above, I am starting to think that I might like to continue owning it to sell the Covered Calls and, in effect, create my own dividend while at the same time decreasing my basis.

Today, 1/1211, I sold 4 YHOO Feb11 16 Puts for a net deposit of $146.94 in an IRA account.  My basis for these YHOO shares, if put to me, would be 15.63, excluding trading costs.

This trade provides a simple yield of about 2.54% and an annualized yield of about 18.19% on my cost if the shares are Put to me.

I already own 400 YHOO shares in this same IRA account with a basis of 19.73 and 200 shares with a basis of 13.28, all of which have Jan11 Covered Calls on them.  The 200 shares will probably be called away at 16.  I considered buying to close the Calls on the 200 shares and consolidating them with the other 400 in order to reduce my overall basis and then sell new Covered Calls on the entire 600.  Upon analysis I determined that it would be better to let them be called away and sell new Puts on YHOO, even though at a higher strike price.

YHOO does not pay a dividend so it does not meet my general investment goals.  However, I am finding that it is not a bad position to trade around…at least not at the moment.  I feel pretty confident that these current Puts will not be assigned to me but you never know.  YHOO! Finance has a 12 month price target of $18.19 with an overall Neutral opinion being expressed by the various analysts that contribute there.

I have been hesitant to sell these Puts on YHOO but when I consider the return on them and consider that the option premiums make a decent substitute for dividend income I decided to go ahead.