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.
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.
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.
| Strike Price | Option Price | Cost Basis if exercised | Total Return if Expires | CAGR if Expires | YOC if exercised |
|---|---|---|---|---|---|
| $9.00 | $0.22 | $8.78 | 1.11% | 13.89% | 0.45% |
| $10.00 | $0.64 | $9.36 | 4.15% | 61.44% | 0.42% |
| Strike Price | Option Price | Cost Basis if exercised | Total Return if Expires | CAGR if Expires | YOC if exercised |
|---|---|---|---|---|---|
| $9.00 | $0.36 | $8.64 | 2.28% | 14.95% | 0.46% |
| $10.00 | $0.81 | $9.19 | 5.42% | 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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