Daily Stock Market Equity and Options Trading Commentary

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Tuesday, September 15, 2009

50 Four Day Buy/Write Option Ideas: September Expiration

With the September options expiration approaching us in just 4 days, I thought I would outline some trade ideas on stocks I wouldn't mind going long (with the exception of AIG), that would return good percentages in just 4 days. When using the buy/write option strategy, it is important that you are willing to hold the security in case it is below the strike price at options expiration. I have put together a list of stocks/ETF's which will return a nice percentage gain if they are above the strike price as of September options expiration, but will also protect (lower cost basis) to the downside in case the stock/ETF sells off slightly and expires below the strike price. The list below is a very tall one, and for your convenience I have ranked the securities in order from the largest % return to the least. To learn more about the buy/write option strategy, risks, pricing, calculations, other strategies, and options in general, click here.

Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are riskier.

To understand the table, I will give a detailed example of Bank of America (BAC) below.

Sell the Bank of America September 17 strike call option. The premium received from the call option would give a downside protection of 1.82%. If the stock is assigned at options expiration on September 19, 2009 the total return from this position would be 1.88% in 4 trading days.

Company Ticker Strike Potential Return % Protection %

Citigroup Inc. C 5 11.50 0.88
Dendreon Corporation DNDN 28 5.72 3.65
MBIA Inc. MBI 7 5.64 4.34
American Intl. Group AIG 41 5.18 5.45
MGM MIRAGE MGM 12.5 5.11 3.65
SXC Health Solutions SXCI 45 4.30 0.80
Palm, Inc. PALM 14 4.04 6.61
Direxion Daily Financial Bull 3X ETF FAS 80 3.87 3.33
Allied Irish Banks, plc AIB 7.5 3.81 5.26
AMR Corporation AMR 7 3.75 2.88
Hartford Financial Services HIG 26 3.69 2.72
Coventry Health Care, Inc. CVH 25 3.55 2.82
Teck Resources Limited TCK 27 3.50 1.88
Yahoo! Inc. YHOO 16 3.47 0.71
Wynn Resorts, Limited WYNN 70 3.46 2.24
First Solar, Inc. FSLR 135 3.28 1.84
Discover Financial Services DFS 15 3.13 3.33
Agnico-Eagle Mines Limited AEM 70 3.01 2.16
Allegheny Technologies Incorporated ATI 34 2.91 2.08
Eastman Kodak Company EK 6 2.69 7.90
Human Genome Sciences HGSI 20 2.64 4.89
SL Green Realty Corp. SLG 40 2.47 2.62
Barclays PLC BCS 25 2.46 1.81
Las Vegas Sands Corp. LVS 17.5 2.44 5.54
KB Home KBH 19 2.42 2.37
BB&T Corporation BBT 27.5 2.41 1.83
Kinross Gold Corporation KGC 22 2.36 2.50
Kinross Gold Corporation KGC 22 2.36 2.50, Inc. AMZN 85 2.30 0.94
Genworth Financial, Inc. GNW 11 2.28 5.71
Goldcorp Inc. GG 41 2.25 1.84
CME Group Inc. CME 280 2.17 1.44
Cliffs Natural Resources Inc CLF 30 2.14 3.45
Chesapeake Energy Corporation CHK 27 2.07 2.40
Capital One Financial Corp. COF 38 2.04 2.87
Baidu, Inc. BIDU 380 2.00 1.87
Goldman Sachs Group, Inc. GS 180 1.99 0.70
Textron Inc. TXT 19 1.97 3.37
CSX Corporation CSX 47 1.95 2.12
Caterpillar Inc. CAT 49 1.95 1.48
ArcelorMittal MT 40 1.94 2.61
U.S. Bancorp USB 22 1.91 1.82
Gold Fields Limited GFI 14 1.90 3.17
Wells Fargo & Company WFC 28 1.90 1.61
Bank of America Corporation BAC 17 1.88 1.82
JPMorgan Chase & Co. JPM 44 1.85 1.28
Google Inc. GOOG 480 1.60 0.57
Apple Inc. AAPL 175 1.58 0.84
Wells Fargo & Company WFC 28 1.54 1.25
Deere & Company DE 43 1.36 1.96

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As a shareholder of Bank of America, Citigroup, and Goldman Sachs shares, I've written them out for a variety of strikes for the September options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.

Disclosure: Long BAC, C, CAT, GS, PALM, Short BAC September 20 Call Options, C September 5 Call Options, PALM September 16 Call Options

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