Wednesday, September 12, 2012

New Trade: Phillip Morris (PM) Naked Puts

Today with Phillip Morris showing weakness and trading down below $87/share I entered into the following transaction:

09/12/12   STO 2 PM Dec 22 2012 80 Puts @1.23    234.50

I've wanted to trade PM for a while but never had the opportunity as it was in a constant incline while I like to sell puts on weakness. Phillip Morris is a blue chip company with a rising dividend. In fact it raised it's quarterly dividend today to .85/share which increases PM's yield to 3.9%. The stock has been rising but appears to have support above 80. If put to us our yield on cost will be 4.3%.

If the puts expire worthless we will earn $234.50 in 101 days on initial margin maintenance of $2100. This equates to an 11.16% return on maintenance or 40.33% annual. We have downside protection in the neighborhood of 10%. In the event the stock tanks we should be able to roll down and out for a net credit. As such, an exit strategy is in place.

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