Today in a taxable account with JNJ trading at just under 65 I entered into the following transaction:
01/19/2012 STO 4 JNJ Apr 21 2012 60 Puts @.77 294.89
JNJ is obviously a long term hold. It is a dividend aristocrat, dividend champion, blue chip, widow and orphan core holding. If put to us our yield on cost will be over 3.8% with a dividend increase expected shortly after. We could then write covered calls on the position. If the puts expire worthless we will earn 8.73% in 93 days on margin maintenance of $3377.60 which equates to 34.26% annual. Of course we could choose to roll the position, we'll just have to see how things shake out.
I have a similar trade I initiated in December 2011.
ReplyDeleteI used a similar logic to yours.
What criteria do you consider when choosing the expiration date for your options writing?
Thanks.
Slipkid1850
Some sound moves.
DeleteHey Slipkid
ReplyDeleteI check the charts and try to write puts at or below the 52 week low. With a stock like JNJ I look at yield on cost. If it would get put to me and yield 4% I know it's gonna rise because this is a 3% or so yielder. I picked this expiration because that's the first expiration where it paid a decent premium for such a low risk trade.
I also look at exit strategies. Some stocks roll better than others. Some are great for writing covered calls if put to me in addition for collecting the dividend.
I hope I answered your question. I appreciate the comment! Good luck in your trading.
BTW what was your trade? Chester
Thank you for the kind reply. Thanks also for the insight into your strategies. If I understand your answer properly, you don't have a fixed time element involved when choosing an expiration. However, do you have a limit as to how far into the future your trade will extend?
ReplyDeleteI am happy to share my current open and recently expired contracts.
1 put sold MMM 01/21/12 $75.00 Initiated 11/28/11. Premium $3.00
1 put sold AGU 01/21/12 $70.00 Initiated 11/28/11. $3.70 *
1 put sold AGU 01/21/12 $72.00 Initiated 11/28/11. $4.60 *
2 put sold RY 11/21/12 $44.00 Initiated 11/28/11. $1.37 *
2 put sold RY 04/21/12 $44.00 Initiated 12/14/11. $1.31 *
2 put sold JNJ 04/21/12 $60.00 Initiated 12/14/11. $1.75
2 put sold MMM 04/21/12 $75.00 Initiated 12/14/11. $3.47
4 put sold RIMM04/21/12 $14.00 Initiated 01/13/12. $1.20
5 put sold ECA 07/21/12 $14.00 Initiated 01/17/12. $0.70
* indicates Montreal Stock Exchange/Canadian dollars.
Thanks again for the kind words and the great blog. I will spread the word.
Slipkid1850.
I like those trades and they seem to be proceeding well for you. We seem to have similar strategies. RIMM scares me though. Good luck.
ReplyDeleteI respect that assessment of RIMM and your suspicions may prove prescient. My thinking is as follows and I would be interested in your opinion should you care to share it. RIM's growth in the developing world, the value of its patents, a 70 million strong subscriber list and the uniqueness of the encryption device all indicate to me a company that has many options for the future. Some analysts value the above as high as $22.00 per share if the company were to be broken up. If I get put at $14.00, less the $1.20 premium, this is a stock I am willing to hold, sell some covered calls and wait until the problems are worked out. They have little debt, quite a bit of cash, and remain profitable.
ReplyDeleteAnyone aggressively shorting this stock is in for a big surprise.
Thanks again for your comments, for the great blog and take care.
RIMM cleaned house and the market liked it, huh?
ReplyDeleteStocks in the healthcare area or food stocks do not seem to be the best type oompanies to use options. Stocks that have a high betas seem to me to make better gains.
ReplyDelete