Returns available now on selling Sept. or Oct. BAC DOOM naked puts
The Sept. 4's are quoted at $9 bid, $11 asked. 200 contracts sold at the bid would reap $1,650 after commissions. At my brokerage using cash as collateral, it would take $12,200 to be able to do the investment. If the stock continues to close above the $4.45 margin-safe point (it's $7.19 now), the return on invested capital will be 13.0%. With five weeks to go until expiration, the return per WEEK is 2.6%.
The Oct. 4-strikes for BAC are now quoted at $21 bid, $23 asked. A sale of 200 contracts at the bid would rake in $4,050 after commissions. At my house, a cash deposit of $14,600 would be sufficient to margin the position. Return on invested capital in this case would be 27.9% and with ten weeks remaining to expiration, the return per WEEK is 2.8%.
These amounts for such short time periods are hardly chump change. When 2K or so per month is being earned, it sure won't take that long to get back my losses if I'm also going to earn 18K on the 5-strike naked puts that I'm short for the 23 weeks out to January.
BAC also has 4-strike DOOMS available for November.
They are now quoted at $30 bid, $31 asked. A sale of 200 contracts at the bid would garner $5,850 after commissions. At my brokerage, a cash deposit of $16,200 would be sufficient to margin the position. Return on invested capital in this case would be 31.1% and with fourteen weeks remaining to November expiration, the return per WEEK is 2.2%.
So the WEEKLY returns for the various 4-strike naked puts for BAC expiring in 2011 are:
2.6% WEEKLY for the Sep. 4 strikes. 2.8% WEEKLY for the Oct. 4 strikes. 2.2% WEEKLY for the Nov. 4 strikes.
With these kind of returns which are all over 100% annualized, you might think that you are just taking incredible risks.
But don't forget that all of these investments involve FOUR-strike naked puts with a margin-safety of $4.45 per share.