Update On Selling Puts
As volatility continues especially with the 376 point drop in the Dow yesterday, I wanted to provide a quick update to the article yesterday about selling puts versus putting in low limit orders on your favorite stocks.
In my example, I discussed selling the Sept puts on Philip Morris Int’l for a $.66 premium. Well, due to the drop yesterday, you can now do the same for a $.93 premium. This means you’d sell a contract which obligates you to buy 100 shares if the strike price hits (in this case the strike price is $35). So, for each contract, you’d need to have $3500 in cash ready in case it hits. The $93 premium means, you’d earn 2.6% on that $3500 over the next 4 months (equals a 7.97% annual return) while you wait on buying PM shares for $35 a share.
I love this strategy. The only risk is that the shares drop well below $35 and you’re stuck buying at $35 as opposed to the lower price. In my opinion, it’s a pretty low risk as I’d take PM shares all day at $35 a share.
I talk about Philip Morris Int’l (PM) a lot but it’s just my example stock that I frequently use. This same strategy can be used for whatever stock you’re targeting, but I would recommend this strategy for the dividend stocks versus non-dividend stocks like Apple (AAPL) which is another ball game.