Sunday, September 23, 2012

Options Update

With Intel closing on Friday at $23.13 my September 22 2012 $25 put option was exercised.  You can see the details and thought process of my selling the put option here.  By selling the put option I received $52.01 in premium.  In order to calculate my new cost basis you take the $25 strike for the put option and subtract the $52.01 option premium which needs to be on a per share basis and then add the applicable brokerage costs back.  For these shares it looks like this:
$25 - $52.01 / 100 + $7.95 / 100 = $24.56

These 100 shares of Intel will add $90 per year to my dividends and an extra $22.50 this year.  My YOC for these shares is 3.66% and it brings the total YOC for my position to 3.71%.  If you remember from my stock analysis on Intel, I calculated a fair value of $30.40 meaning that at the $24.56 cost basis the shares are undervalued by 19% which provides a good margin of safety.  Unfortunately I could have bought the shares for even less than I got them for through the put option.  Intel now makes up 8.12% of my portfolio which is a little high with it being the 3rd largest position.  I might look to try and sell another put option to lower my cost basis further; however, that would be as much of my portfolio as I would feel comfortable allocating toward one position at this time.

I believe that with Intel's R&D budget it's more just a matter of time before they are able to make their way into the mobile/tablet market.  They already have a side play on the mobile/tablet space with their server business since large quantities of data needs to be stored and quickly accessible.  Intel has recently announced an agreement with "Googorola" to provide chip's for the Razr i.  The beginning of Intel's foray with mobile chip technology and a possible turn in employment leading to increased PC sales could prove that the recent pullback is just noise giving long-term investors a great entry price.

I've updated my Option Summary page to reflect this change.

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