Tuesday, March 20, 2012

Selling Puts for Added Income

It's about time for another look at possible put option moves to get a better entry price or for added income. All calculations are based off of prices from March 20, 2012.

Today I'll be looking at Bank of America. I still have high regard for high capital gains returns. I know it's not necessarily a solid dividend stock right now but at current prices you could be getting a great yield on cost due to the increase in the dividends to go along with solid capital gains. The current price for Bank of America is $9.82 giving a 0.40% current dividend yield.






























Bank of America (BAC) 20 Apr 2012 Puts
Strike PriceOption PriceCost Basis if exercisedTotal Return if ExpiresCAGR if ExpiresYOC if exercised
$9.00$0.22$8.781.11%13.89%0.45%
$10.00$0.64$9.364.15%61.44%0.42%































Bank of America (BAC) 18 May 2012 Puts
Strike PriceOption PriceCost Basis if exercisedTotal Return if ExpiresCAGR if ExpiresYOC if exercised
$9.00$0.36$8.642.28%14.95%0.46%
$10.00$0.81$9.195.42%38.68%0.43%



I currently own shares of BAC and wish I had picked up more at cheaper prices. I think within a 2-3 year time frame you could still be looking at a double or triple from today's prices. If you're looking to not have the shares put to you then go with the lowest strike price for the put. Personally I would go for something that's around a 50/50 chance of getting exercised as long as you still get a good discount versus purchasing the shares outright at current prices. I like the May $10 strike put since you still have 6.42% downside protection before you would begin to lose money and if the stock continues to go up as I think it will you'd be looking at a 5.42% return in a little less than 2 months.

*Assumed 25% tax bracket and the commission costs of $8.70 that I would pay.

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