Recent Option Transaction
I went ahead and sold another put option on Cisco (CSCO) this morning. This time it was a $21 strike expiring next Friday on May 18th. I sold the put for $0.55 and after commission and fees received $47.01 in option premium. Cisco was trading around $20.95 at the time of sale.
This trade can work out one of 3 ways.
(1) If Cisco is trading above $21 on expiration, I'll get to the keep the full $47.01 as profit. This would be a return of $47.01 / $2,100 = 2.24% in a week so that's good for a 102.13% annualized return.
(2) If Cisco is trading below $21 on expiration, I'll be forced to purchase 100 shares for $21. Although I received the option premium so my cost basis would be calculated as $21 - $47.01 / 100 + $7.95 / 100 = $20.61. Based on the current annual dividend of $0.68, these shares would carry a 3.30% YOC and would provide an extra $68 in annual dividends.
(3) If Cisco makes a large move higher over the next week, I can buy to close the put option for a profit less than in case 1.
Cisco announces earnings next week on Wednesday, May 15th which is why the premium is rather large one week out from expiration. This is a bit more of a speculation play that Cisco will beat on earnings and guide well providing a catalyst for the share price to climb higher. The reason I think they'll beat on earnings is that they have been beating earnings recently and companies are continuing to try to become more efficient through upgrading hardware for their vast computer networks. At least that's what I'm betting on. I'd prefer to just collect the premium and be done with it, but I'll be perfectly content with purchasing the shares at $20.61. As I mentioned in my other post, Cisco currently has $8.70 per share in cash on it's books so the future growth of the company is being greatly discounted in my opinion.
In other news, my purchase of Microsoft earlier this week pushed the invested value of my portfolio over the $100k mark. Of course that only lasted for 2 days and I'm back under for the time being. It's still nice to see 6 digits left of the decimal at least for a while. Soon enough it'll always be over that.
I've updated my Option Summary page to reflect this change.
This trade can work out one of 3 ways.
(1) If Cisco is trading above $21 on expiration, I'll get to the keep the full $47.01 as profit. This would be a return of $47.01 / $2,100 = 2.24% in a week so that's good for a 102.13% annualized return.
(2) If Cisco is trading below $21 on expiration, I'll be forced to purchase 100 shares for $21. Although I received the option premium so my cost basis would be calculated as $21 - $47.01 / 100 + $7.95 / 100 = $20.61. Based on the current annual dividend of $0.68, these shares would carry a 3.30% YOC and would provide an extra $68 in annual dividends.
(3) If Cisco makes a large move higher over the next week, I can buy to close the put option for a profit less than in case 1.
Cisco announces earnings next week on Wednesday, May 15th which is why the premium is rather large one week out from expiration. This is a bit more of a speculation play that Cisco will beat on earnings and guide well providing a catalyst for the share price to climb higher. The reason I think they'll beat on earnings is that they have been beating earnings recently and companies are continuing to try to become more efficient through upgrading hardware for their vast computer networks. At least that's what I'm betting on. I'd prefer to just collect the premium and be done with it, but I'll be perfectly content with purchasing the shares at $20.61. As I mentioned in my other post, Cisco currently has $8.70 per share in cash on it's books so the future growth of the company is being greatly discounted in my opinion.
In other news, my purchase of Microsoft earlier this week pushed the invested value of my portfolio over the $100k mark. Of course that only lasted for 2 days and I'm back under for the time being. It's still nice to see 6 digits left of the decimal at least for a while. Soon enough it'll always be over that.
I've updated my Option Summary page to reflect this change.
Interesting move, I haven't looked closely at CSCO stock yet. I know they are the key player in routing/networking as they seem to set the standard. The US military uses Cisco routers and switches, I see them all the time. If I ever get out of the Army I might go for the CCNA cert, as that can open up doors in fields related to what I do now.
ReplyDeleteI remember a colleague buying CSCO a few years before they even paid a dividend, and the price was higher than as it is now. Perhaps since it has not risen with the market there is some value here?
CI,
DeleteI don't typically look for situations like this but it was compelling to take the short term gain or make a purchase of a company I like at a relatively good price.
I actually was thinking about going back to school after reaching FI for some kind of IT or programming degree, because you can work in any business that you want. We'll see what happens though because it's still a few years away and there's so many things that are pulling for my attention.
Thanks for stopping by!