HOT TRADING STRATEGIES FOR A COLD MARKET
Daily Stock Market Equity and Options Trading Commentary

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Thursday, May 28, 2009

20 Income Generating Buy-Write Option Strategies

If you are slightly bullish or think the market will move sideways in the months to come, you may find it useful to use the buy/write strategy. I have been using this with various stocks over the past month, and write them out for the nearest expiration or next expiration. To learn more about buy/write option strategies check out my BLOG. In this article I will be giving you some of the best rated buy/write option strategies as well as some I have used in the previous 6 months. Although I do not like holding onto leveraged ETF’s too long, I find them good for these strategies as they offer very large premiums (because they are so volatile). All options pricing, probabilities, and stock discount % is based as of pre-market Thursday May 28, 2009.

Option Buy/Write Strategy 1: Buy Apple (AAPL), sell covered call for June 130 strike. This would give you over a 5% discount on Apple shares. The options market is factoring in a 61.7% chance you’ll get called out on these shares.

Option Buy/Write Strategy 2: Buy ConocoPhillips (COP), sell covered call for July 45 strike. This would give you over a 4.8% discount on Conoco shares. The options market is factoring in a 47.9% chance you’ll get called out on these shares.

Option Buy/Write Strategy 3: Buy DeVry (DV), sell covered call for July 45 strike. This would give you over a 5.5% discount on DeVry shares. The options market is factoring in a 46.6% chance you’ll get called out on these shares.

Option Buy/Write Strategy 4: Buy Devon Energy (DVN), sell covered call for July 60 strike. This would give you over a 6.9% discount on DVN shares. The options market is factoring in a 54.5% chance you’ll get called out on these shares.

Option Buy/Write Strategy 5: Buy Ultra Petroleum (UPL), sell covered call for July 45 strike. This would give you over a 5.9% discount on UPL shares. The options market is factoring in a 49% chance you’ll get called out on these shares.

Option Buy/Write Strategy 6: Buy FedEx (FDX), sell covered call for July 55 strike. This would give you over a 5.6% discount on Fedex shares. The options market is factoring in a 46.9% chance you’ll get called out on these shares.

Option Buy/Write Strategy 7: Buy Caterpillar (CAT), sell covered call for July 36 strike. This would give you over a 5.9% discount on CAT shares. The options market is factoring in a 46.7% chance you’ll get called out on these shares.

Option Buy/Write Strategy 8: Buy Nike (NKE), sell covered call for July 55 strike. This would give you over a 5.2% discount on Nike shares. The options market is factoring in a 49.9% chance you’ll get called out on these shares.

Option Buy/Write Strategy 9: Buy Celgene (CELG), sell covered call for July 40 strike. This would give you over a 7.3% discount on Celgene shares. The options market is factoring in a 59.7% chance you’ll get called out on these shares.

Option Buy/Write Strategy 10: Buy GameStop (GME), sell covered call for July 22.50 strike. This would give you over a 6.5% discount on GME shares. The options market is factoring in a 49.9% chance you’ll get called out on these shares.

Option Buy/Write Strategy 11: Buy Google (GOOG), sell covered call for July 400 strike. This would give you over a 5.8% discount on GOOG shares. The options market is factoring in a 57.5% chance you’ll get called out on these shares. Buying Google in 100 share blocks obviously
can’t be for everyone, so you may want to try an option spread. Check out my blog for more on option spreads here.

Option Buy/Write Strategy 12: Buy Goldman Sachs (GS), sell covered call for July 140 strike. This would give you over a 7.2% discount on GS shares. The options market is factoring in a 53.1% chance you’ll get called out on these shares.

Option Buy/Write Strategy 13: Buy McDonalds (MCD), sell covered call for July 57.50 strike. This would give you over a 3.2% discount on MCD shares. The options market is factoring in a 52.4% chance you’ll get called out on these shares.

Option Buy/Write Strategy 14: Buy Transocean (RIG), sell covered call for July 75 strike. This would give you over a 5.9% discount on RIG shares. The options market is factoring in a 51.4% chance you’ll get called out on these shares.

Option Buy/Write Strategy 15: Buy Walmart (WMT), sell covered call for July 50 strike. This would give you over a 3% discount on WMT shares. The options market is factoring in a 45.4% chance you’ll get called out on these shares.

Option Buy/Write Strategy 16: Buy Intel (INTC), sell covered call for July 15 strike. This would give you over a 7.4% discount on INTC shares. The options market is factoring in a 59.6% chance you’ll get called out on these shares.

Option Buy/Write Strategy 17: Buy 3M (MMM), sell covered call for July 55 strike. This would give you over a 6% discount on 3M shares. The options market is factoring in a 56.8% chance you’ll get called out on these shares.

Option Buy/Write Strategy 18: Buy Palm (PALM), sell covered call for June 11 strike. This would give you over a 11.4% discount on Palm shares. The options market is factoring in a 51.6% chance you’ll get called out on these shares.

Option Buy/Write Strategy 19: Buy SPDR S&P (SPY), sell covered call for July 91 strike. This would give you over a 3.2% discount on the SPY. The options market is factoring in a 45.3% chance you’ll get called out on these shares.

Option Buy/Write Strategy 20: Buy SPDR Gold (GLD), sell covered call for July 95 strike. This would give you over a 3.1% discount on GLD shares. The options market is factoring in a 45.7% chance you’ll get called out on these shares.

With these strategies some may be written in the money and some may be written out of the money. The more volatile the underlying stock the more the premium will be. Some of the strategies with a lower discount may be because they are trading below the indicated strike; this means if you get called out you’ll receive additional profit from a gain in the sale of the underlying stock. Similarly this can be said for any of these stocks with a greater discount to the stock, this is because if you get called out you may take a small loss on the sale of stock (all strategies sure to net a profit if called out). You will most likely have to adjust strike prices and expiration dates according to your opinion. I have been using this strategy for various stocks such as RIMM, TNA, FAS, UYG, BAC, and POT month after month buying the stock and writing it out immediately. I aim for a 5%-6% gain monthly (60%-72% annually). If I do not get called out I simply wait for the stock to gain a little strength and write it out again for the next expiration.

If you are a bit more bearish this strategy may also be for you, you will just need to adjust strike prices and write the stock out deeper in the money. I have found that writing stocks out to the nearest expiration has returned the greatest profit.

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2 comments:

alexc said...

very interesting strategies. Using TOS paper money account, I enter these strategies. Question: how do you calculate percentage that the market will call out those shares (45.3% for SPY) (Option Buy/Write Strategy 19: Buy SPDR S&P (SPY), sell covered call for July 91 strike. This would give you over a 3.2% discount on the SPY. The options market is factoring in a 45.3% chance you’ll get called out on these shares.) thanks

Marco H said...

alexc, thanks for dropping by. It is a complicated calculation which is derived from the Black-Scholes option pricing model. I am sure you can find info on Google. Some brokerages give an options calculator which should contain this value known as Delta.

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