Tuesday, December 27, 2011

End of Year Put Selling

With the creation of weekly options there are now many stocks that have options expiring this Friday Dec $30. The volatility in these options seems to be in-line with traditional market factors.  However, it seems like there is less of a probability of bad news coming out during this holiday week than in most weeks.  Hence, CCI is willing to risk some capital on selling out of the money puts to potentially generate some short-term cash.  As always when selling puts an investor needs to be prepared to take ownership of the stock if the market falls.

Here are two very short-term put sales CCI established

On Friday, Us Steel, (X) was trading just under $26.  The Dec 30 $25 puts were able to be sold at $.32.   I believe the volatility is so high, because of various M&A rumors and related arbitrage.  However it seems less likely that any breaking news in that area will occur in this slow, quiet, holiday week.  So CCI feel that there is a good probability that the stock stays over $25 this week and the portfolio can earn a 1.2% premium in a week.

On Tuesday, the emerging market ETF (EEM ) was trading around $38.2, it was possible to sell the Dec $38 puts for $.37.     This position essentially has a 50/50 likelihood of either yielding 1% or being put the ETF at a price of $37.67.    CCI is comfortable adding to our overall emerging market position so I am comfortable taking this risk.

No comments:

Post a Comment