Very safe INTC naked put investment will return 11.1% in seven months
On June 23, 2010, TD Ameritrade which is where I have my account lowered margin maintenance accounts on lower-strike naked puts to what I believe are the lowest in the nation. Because of that, naked puts written on deep-out-of-the-money options that might have previously returned something like 6% annualized are now returning three times that percentage.
Right now with the stock at $21.85, the 15-strike naked puts expiring in Jan. 2012 are quoted at $20 bid, $21 asked. Original cash requirements to sell these contracts are $171 apiece.
If 100 contracts were sold at the $20 bid, proceeds after commissions would be about $1,900. If $17,100 is deposited (it has to be cash for this return), as long as the stock goes no lower than about $16.75 over the next seven months, no further deposits would be needed and the $1,900 is yours to keep.
The return if held the 31.8 weeks to expiration is 11.1% which is an amazing 18.15% annualized for this safe of an investment. In actual fact, you will likely be able to buy back the contracts early for a song with some time to go before expiration and that would increase the annualized return to over 20%.
I'm a retired accounting manager who specializes in options strategies. I post almost exclusively on the Pfizer board and am posting this one message on this board because this to me is such an unusually fine, low-risk opportunity.
> I'm a retired accounting manager who specializes in options strategies. I post almost exclusively on the Pfizer board and am posting this one message on this board because this to me is such an unusually fine, low-risk opportunity.
Fair warning,here are some older messages of his under a different alias, chrt13, from the PFE board:
It's so obvious that Pfizer will make it to my $31 goal within 14 months that I'm going to declare victory ahead of time - declare myself a huge winner, a master options strategist, genius, etc. Any of you readers here that don't like to procrastinate, feel free to congratulate me now and to eat, drink and make merry.
chrt13 ========================================== ============================== chartness on 4-Sep-03 at 10:53 am
"Looking at what the price of the stock has done over the last six years, it is interesting to note that this is the first year since 1997 that the stock has failed to at least get to $42. That's right - prior to this year, PFE was $42 or higher at some poing in the year every year from 1998 through 2002. The last time PFE had a year without the stock hitting $42, it was 1997 and earnings were 53 cents a share (versus $1.73 expected this year and $2.13 next).
This to me is a pretty compelling buy at $30 or so. Going back as far as 1997, PFE has never sold for less than 17 times trailing earnings. At $30, the stock trades for 18.5 times trailing earnings - right near the absolute 6-year low." =============================== ============================================= Re: My ship will be coming in 31-Oct-07 07:12 pm
Here is an excerpt from your post:
Risk management is absolutely critical to succeed in the market.
The biggest part of risk management is to put yourself in situations that simply aren't very risky. Pfizer at these prices is virtually riskless. That's what I call managing risk extremely well.
After commissions, you will wind up with proceeds of only around $25 per unit - not $28. $25 per unit on margin requirements of $250 is 10% for the duration whereas with just the sale of the 15-strikes, it's 11.1%.
But my play has a lot more safety. Where are you with your spread in the unlikely event that the stock does go to a price like $17? With my play, there's still a margin of safety even at $17 whereas with the spread, you wind up a loser.