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Pfizer Inc. Message Board

  • chrttwelve chrttwelve Mar 8, 2011 6:00 AM Flag

    My likely returns if the naked put stocks are where they are now in six months

    I am planning on buying back all of my naked puts in about six months. What would my returns be if in six months the stocks happened to be selling where they were now and the January options at that time were going for about what the July options are going for today?

    I took a look at this and estimated what July options would be at in cases where the quarterly series is June or August instead.

    Stock by stock, here is what the returns would be for six months for do-nothing stocks:

    1) BAC 7.50's - now at $25 bid, they would be at around $9 asked in six months. Cash requirements are now $140 per contract and after commissions, profits would be $14. The return would be 13.9% for six months or 27.8% annualized.

    2) F 10's - now at $46 bid, they would be at around $18 asked in six months. Cash requirements are now $148 per contract and after commissions, profits would be $26. The return would be 17.6% for six months or 35.2% annualized.

    3) INTC 15's - now at $42 bid, they would be at around $14 asked in six months. Cash requirements are now $195 per contract and after commissions, profits would be $26. The return would be 13.3% for six months or 26.6% annualized.

    4) PFE 15's - now at $50 bid, they would be at around $15 asked in six months. Cash requirements are now $202 per contract and after commissions, profits would be $33. The return would be 16.3% for six months or 32.6% annualized.

    5) ABT 35's - now at $58 bid, they would be at around $18 asked in six months. Cash requirements are now $411 per contract and after commissions, profits would be $38. The return would be 9.2% for six months or 18.4% annualized.

    6) CSCO 15's - now at $72 bid, they would be at around $29 asked in six months. Cash requirements are now $223 per contract and after commissions, profits would be $41. The return would be 18.4% for six months or 36.8% annualized.


    Note that these are the expected returns if the stocks do absolutely NOTHING. If they do better, the annualized returns will be better - and indeed that is why I have done so well to date with this portfolio given how well the market has done.

    Notice the significantly lesser expected return for ABT than any of the others. Just why is that? It's due to the fact that as a much higher stock where I'm selling a higher strike price, the MARGIN requirements are much higher - I'm having to put up $411 per contract instead of just the $100 to $225 for all of the other put positions. MARGIN MATTERS where the return is concerned. And that's why at houses that require $500 or more per contract, you will do very significantly worse than I will do where I have my account.

    For the five open positions excluding ABT, the expected return over the next six months if the stocks do nothing would be 15.9% which is 31.8%.

    Imagine that - returns averaging 2.65% PER MONTH for stocks that do nothing. Where else do you get that kind of return with such little performance? Now you know why I'm so excited about this strategy and won't stop writing about it.

    If the stocks go down but don't crash, the returns would still be excellent although obviously not 2.65% per month. But what's wrong even with 1.65% per month for stocks that go DOWN moderately?

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