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Daily Stock Market Equity and Options Trading Commentary

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Monday, January 17, 2011

3 Dow Stocks to Buy-Write Now

In this post I will outline three Dow stocks which are attractive at the current levels and will explain why I would choose to buy-write them. The buy write option strategy is the simplest option strategy it is simply purchasing at least 100 shares of a particular stock and then sell one option contract against it (standard contracts in multiples of one hundred so you could sell 5 contracts against 500 shares of stock). This strategy is a way of creating income and for those already holding the stocks with a nice gain it is also a form of hedging or protecting to the downside by taking a little profit off the table. The downside is that it locks your shares up and if the stock catches fire you may be called away and miss out a ton of upside.

The first stock I find attractive from the Dow Jones Industrial average is Boeing (BA). I feel this stock is undervalued based on the future of the company and the dividend they pay. The last dividend of 42 cents was paid on November 3, 2010, so it should yield another two dividend payments by May options expiration - therefore I would likely look to write shares of Boeing out no later than May expiration. I could write the May 75 calls against shares of Boeing for about $2.00 per share bringing my cost down about 2.67% to $68 per share...

To continue reading this, view the full article on Seeking Alpha by clicking HERE.
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