Monday, June 11, 2012

Recent Transaction

This is going in the Recent Buy section even though I didn't buy anything. I sold a put contract for Intel today expiring July 20, 2012. The strike price is for $25 and I sold it for $0.53 per share or $53. By selling this put contract I was able to receive $53 less commission for a total of 1.35% return on the $2,500 in capital being tied up. So over the 39 days til the contract expires that equates to a 13.38% annual return. Not bad, especially considering that Intel is currently selling for $25.98. This put contract will give me a solid return if it goes unexercised and if it does get exercised that's actually what I'm looking for. If the put contract does get exercised my cost basis on the 100 share lot will be $25 less the premium ($0.53) + the commission ($7.95 + $0.06) = $24.55. At the current annual dividend rate of $0.90 per share that will give me a YOC of 3.67% which is 8.00% better than the current yield.

If you remember from my stock analysis on Intel , the average fair value was $30.40. I also set a 3.50% target entry YOC which corresponds to the $25.71 cost basis. The reason I sold the put option contract is because it is giving me a good return either way. Ideally the contract would be exercised with the stock price just slightly under $25 but above my $24.55 entry price.

All the returns are after-tax returns. I've assumed that I will be in the 25% marginal tax bracket at the end of the year.

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