An incredible naked-put investment opportunity in INTC
Reposted from an earlier message of mine from the Pfizer board, my home base:
The last hour today, the premiums on naked puts rose quite substantially. I have checked two sources of options prices and they are both identical. One example is INTC which closed yesterday at $21.42 with the 15-strike naked puts expiring in Jan. 2012 quoted at $24 bid, $25 asked. Today, that stock closed unchanged at that same $21.42. But those puts now are quoted at $28 bid, $30 asked. I realize that volatility has risen this week but this is just ridiculous. Especially for options this far out of the money and no big company-specific news. The company blew earnings out of the water last time and hasn't even been below $21 in two months now. Remember that these are FIFTEEN-strike options expiring seven months from tomorrow.
At the current quote, cash requirements to do the naked put sale at my brokerage is $180 per contract. The sale of 100 contracts would require $18,000 and the up-front proceeds received after commissions by selling the oontracts at the $28 bid price is $2,700.
It doesn't take a mathematical genius to see that this is a full 15% return for seven months. It's 2.14% per MONTH or 25.7% annualized. And that 25.7% would be minimum as long as the margin-safe point of $16.75 holds because if it does, there would be the opportunity for an early get-out and that would increase the annualized return to the very high 20's.
How utterly incredible for a stock that's at $21.42. It would take more than a 22% stock price slide just to get down to the margin-safe point and it would take a full 30% tumble to get down to the strike price of 15.
If for some reason the stock did go below the margin-safe point, it would be a very enjoyable rollout to the 12.50-strikes for Jan. 2013. How enjoyable? Right now, $27 per option could be added to the coffers on such a rollout which after commissions would be $2,500. So in the unlikely event that a rollout was necessary, total option proceeds received from inception would amount to $5,200 on an $18,000 investment.
The return would be 28.9% for the 19-month duration of 18.3% annualized. And best of all, the margin-safe point would now be all the way down to $14. Even 18.3% annualized is a helluva return on such an ostensibly-safe investment.