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 the close from February 28, 2012.
The current price for Waste Managerment is $35.20 giving a 4.03% current dividend yield.
I currently own shares of WM and would like to add more. I like the potential of these puts. You can get a solid return on the $35 and $36 puts with good downside protection considering it the money would only be at risk for a little over 2 weeks. If I had the money in my account it would be tough to decide which is the best to go with. I think I would probably sell the $36 put to try and get more income since I don't expect a big runup in the market for the time being. I fully expect a pullback to rear its head sometime soon but there's no telling when that will happen. The $36 put gives you 1.14% of downside while returning 2.32% if it expires.
I feel that the elusive market pullback is still coming which means now isn't the best time to sell puts if you're looking to just get income. With a sharp pullback there's a good chance that the options would be exercised. While that might not be the best situation for everyone I always look for options that allow good entry price points as well as the possibility for a solid income return should the option expire.
*Assumed 25% tax bracket and the commission costs of $8.70 that I would pay.
The current price for Waste Managerment is $35.20 giving a 4.03% current dividend yield.
| Strike Price | Option Price | Cost Basis if exercised | Total Return if Expires | CAGR if Expires | YOC if exercised |
|---|---|---|---|---|---|
| $34 | $0.23 | $33.86 | 0.32% | 7.47% | 4.19% |
| $35 | $0.57 | $34.52 | 1.04% | 26.51% | 4.11% |
| $36 | $1.20 | $34.89 | 2.32% | 68.77% | 4.07% |
I currently own shares of WM and would like to add more. I like the potential of these puts. You can get a solid return on the $35 and $36 puts with good downside protection considering it the money would only be at risk for a little over 2 weeks. If I had the money in my account it would be tough to decide which is the best to go with. I think I would probably sell the $36 put to try and get more income since I don't expect a big runup in the market for the time being. I fully expect a pullback to rear its head sometime soon but there's no telling when that will happen. The $36 put gives you 1.14% of downside while returning 2.32% if it expires.
I feel that the elusive market pullback is still coming which means now isn't the best time to sell puts if you're looking to just get income. With a sharp pullback there's a good chance that the options would be exercised. While that might not be the best situation for everyone I always look for options that allow good entry price points as well as the possibility for a solid income return should the option expire.
*Assumed 25% tax bracket and the commission costs of $8.70 that I would pay.
Comments
Post a Comment