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Sunday, July 5, 2009

Seeking Premium: 20 High Delta High Stock Return Option Strategies

With less than 2 weeks until the next option expiration, I wanted to put together a list of buy/write option strategies on strong stocks (based on one of my methods of finding bullish stocks), that had a greater than or equal to 50% current probability of expiring in the money on July 18, 2009 (closest current option expiration), and gave decent downside protection as well as a decent return if the option expires in the money and the stock is sold at the strike price.

The list below includes: Company name (sorted alphabetically), Ticker, Strike Price (noted by Strike, all for July options expiration), Downside Protection in % (noted by Downside), Return on Buy/Write option strategy in % if stock gets called out at expiration (noted by Return), Current probability in % option market is factoring in that the stock meets or exceeds strike price at expiration (noted by Prob.), and if the stock is currently above the strike price known as in the money (noted by IN$).

Company
Ticker Strike
Downside Return Prob.



Akamai Technologies
AKAM 19 5.14 2.88 61
IN$

Amazon.Com
AMZN 75 6.74 1.3 76
IN$

Apple
AAPL 140 2.48 2.46 51.7
IN$

Baidu Ads
BIDU 290 5.22 3.59 51.5



Celgene
CELG 46 3.81 2.25 59.9
IN$

Citrix Systems
CTXS 30 5.94 2.21 67.3
IN$

Cognizant Tech Sol Cl A
CTSH 25 6.95 0.9 80.1
IN$

Express Scripts
ESRX 65 3.82 1.93 62.8
IN$

Fiserv
FISV 45 2.11 1.91 51.6
IN$

Gilead Sciences
GILD 46 2.29 2.51 50.2



Google
GOOG 410 3.35 3.72 50.1



Infosys Technologies Ads
INFY 35 6.21 2.87 64.1
IN$

Joy Global
JOYG 34 5.1 4.14 55.5
IN$

Juniper Networks
JNPR 23 4.88 2.55 62
IN$

Life Technologies
LIFE 40 3.03 2.38 55.5
IN$

O Reilly Automotive
ORLY 35 7.75 1.26 77.7
IN$

Oracle
ORCL 21 2.04 1.85 51.4
IN$

Research In Motion
RIMM 70 3.26 3.67 50



Ross Stores
ROST 37.5 3.17 2.14 58.3
IN$

Yahoo
YHOO 15 3.27 3.34 50.7




The table above allows you to see which stocks (out of my list of 20 chosen) have the best chances at the highest possible returns ("best bang for your buck"). I use this method to choose which stocks I'll be buying to write out immediately. As a higher risk investor, from this table I am most interested in the following stocks: Yahoo (YHOO), Baidu (BIDU), Research in Motion (RIMM), Google (GOOG), and Joy Global (JOYG). This is because all five of these stocks have higher than average returns (assuming they expire above the indicated strike price). A more conservative investor may be interested in choosing the stocks which yield the most downside protection and highest probability of getting assigned at option expiration. You can view printable spreadsheets of the 20 stocks analyzed in this report ranked in order from least to greatest: Return %, Downside Protection %, and % Probability of expiring in the money, at the bottom of this post.

I like using this strategy because even if I'm not called out on the Stock/ETF (at expiration), I'll still have it to write out again at my desired strike price and date again for another premium. Check out my Option E-Books to learn about more strategies such as straddles, strangles, spreads, like the ones mentioned above, options pricing, and more.

To get an idea of what the Sector ETF's are bringing for premiums I have put together a list of the most popular sector SPDR ETF's below.

Sector
Ticker
Strike


Downside


Return

Prob.

Consumer Discret
XLY
22

3.59

2.29

61.5
IN$
Consumer Staples
XLP
22

4.72

0.83

82.5
IN$
Energy
XLE
46

2.79

2.45

53.8
IN$
Financial
XLF
11

5.67

1.57

71.7
IN$
Health Care
XLV
25

3.5

0.58

76.4
IN$
Industrial
XLI
21

3.51

1.83

61.6
IN$
Materials
XLB
25

2.98

2.39

53
IN$
Technology
XLK
17

5.44

0.79

80.3
IN$
Utilities
XLU
27

2.73

1.13

62.7
IN$

As you can see these are even better for a conservative investor, as they have very high downside protection (average of 3.88% among the 9 ETF's analyzed) and a greater than two-thirds chance of expiring in the money at option expiration. However the trade off is that the average return % (assuming the ETF is called out at expiration) is almost 40% lower than the average return for the 20 individual stocks.

Printable Spreadsheets (click on image to enlarge):

Stocks ranked by Downside Protection %
:
Stocks ranked by Return %:
Stocks ranked by % Probability:


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