2 Blue Chip Dividend Stocks Going Ex-Dividend Soon, With High Options Yields

by Robert Hauver
Looking for a safe way to increase your yields?
Our DoubleDividendStocks.com investing service has been specializing in combining options-selling with high dividend stocks since 2009.

Our Covered Calls Table features over 25 covered calls trades, which we update throughout each reading day. Two trades that caught our attention this week are for blue chip dividend stocks Boeing, (BA), and Intel, (INTC).

Both BA and INTC go ex-dividend in early August:  BA goes ex-dividend ~8/9/18, and INTC goes ex-dividend ~8/6/18. They both have conservative payout ratios, but a relatively low dividend yield.

Options:
Although neither one is in the realm of high divided stocks, you can make up for that, via selling covered calls. The August quarterly dividends make for an attractive setup for these covered call plays.
For BA, we chose a $365.00 call strike which is ~3% above its current $354.44 price/share. This call strike pays $5.20, with a tight bid/ask of $5.20/$5.30.
The $5.20 call option payout is ~3X BA’s quarterly $1.71 dividend. It transforms it from a ~7% annualized yield to a ~21% annualized yield, since the trade has just 25 days until it expires.

Here’s a breakdown of the 3 profitable scenarios for the BA trade. Since the $365.00 call strike is $10.56 above BA’s price/share, there’s ample compensation for potentially missing out on the quarterly $1.71 dividend, if the shares rise to $365.00 and get called away prior to the August ex-dividend date. We listed the nominal yields for each scenario:

The INTC trade is right at the money, with a $52.50 call strike, vs. INTC’s $52.30 price/share. The call bid of $1.44 is well over 4X INTC’s $.30 quarterly dividend.

Since both BA and INTC have had very strong price gains in the past year, and are fairly close to their 52-week highs, here’s another strategy to consider.
We’ve added these August put-selling trades to our Cash Secured Puts Table, which has over 30 trades that are updated throughout each trading day.
The August $345.00 BA put strike pays $6.40, which is well over 3X BA’s quarterly dividend, and offers a breakeven of $338.60.
The INTC August $50.00 put pays $.81, which is over 2X INTC’s $.30 quarterly dividend, and has a breakeven of $49.19.
There are plenty of other Put option and Call option strike prices you can choose from. As you get further away, (higher) from the underlying stock’s price/share, the call option bid premiums are lower in value. Conversely, lower put strikes don’t pay as much as those which are closer to the underlying stock’s price/share. One other note – put sellers don’t receive dividends.

Performance:
As we noted above, both BA and INTC have had quite a price run over the past year – BA is up 68.77% and INTC is up 49.38%.

Price Targets:
At their current prices, both BA and ~12% below analysts’ consensus target prices.

Financials:
That bodacious ROE figure for BA isn’t a typo – BA’s management has opted to use more debt than equity in financing its growth over the years. So, its ROE is very high, but its Debt/Equity ratio is also quite high, vs. industry averages.
Like BA, INTC has stronger than average ROA, ROE, and ROI figures, and also has a much better Operating Margin. Its Debt/Equity ratio is higher than industry averages, but not nearly as much as BA’s is.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

Disclosure:
Author owns no shares of BA or INTC at present time.
Copyright 2018 RH Group Inc. All Rights Reserved.

High Options Yields From A Blue Chip Mouse

Did you grow up watching Uncle Walt every Sunday night on the “wonderful World Of Disney”? Or maybe you had your own Mouseketeer hat?
These days, the Mouse hasn’t been getting much respect from Mr. Market, who has been acting like a house cat, with respect to Walt Disney co., (DIS), shares.

The problem is cord-cutting, and how it affects ESPN, one of Disney’s premier cable cash machines. As millennials opt out of bundled cable packages, ESPN has seen sales declines, and the price/share has struggled in the past year.
Click here to read more…

3 Healthcare High Dividend Stocks Beating The Market Pullback

by Robert Hauver
Looking for a safe place to hide during this latest market pullback? Healthcare was not only the leading sector in 2014- it has also led the market for most of 2015. Here’s a look at how the Healthcare sector has fared vs. the S&P 500, over the last 3 months, which just about coincides with the market highs of September 18, 2014. The Healthcare sector is up 3.81%, vs. a -1.44% loss for the S&P 500:
XLV-SP-12-17-14
Digging further, we found 2 high dividend stocks within the Healthcare sector, which have both outperformed this sector and the market – HCP Inc., (HCP), (a Dividend Aristocrat), and Sabra Healthcare REIT, Inc., (SBRA).

Here’s a chart of these 2 dividend paying stocks over the same 3-month period, vs. the S&P 500. HCP is up nearly 10%, and SBRA is up nearly 7% during this period, vs. a -1.44% loss for the S&P 500:
HCP-SBRA-CHART-2014-12-17

Dividends: Our High Dividend Stocks By Sector Tables, lists both of these stocks, in the Healthcare section. In addition, we also follow a third related high yield stock- Sabra’s preferred stock issue, SBRAP, which currently yields nearly 7%, and has also beaten the market during this same 3-month period, having risen 3.08%.
Although HCP has a low 5-year dividend growth rate of 2.94%, it has increased its dividend per share for 29 consecutive years.

SBRA has raised its quarterly dividend from $.32 in 2011, to the current $.39 payout. Sabra amply covers its SBRAP preferred dividends by a factor of 3.22, i.e. its net income is 3.22 times its preferred dividend payout.
HCP-SBRA-DIV
Preferred Long-Term Yield: The table below summarizes your net annualized yield for SBRAP, based upon 2 conditions:
1. You were to hold SBRAP until its 2018 liquidation date
2. Sabra redeems/buys back your SBRAP shares at the call date
Since SBRAP is trading at $1.08 above its $25.00 liquidation price, we subtracted this amount from the dividends that you’d collect between now and 3/21/18. You’d end up with a $4.71 net profit, which equals a 5.54% annualized yield:
SBRAP1-ANN-Yield
Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.
Copyright: 2014 Demar Marketing All rights reserved

These Undervalued Refining Dividend Stocks Have High Options Yields And More Room To Run

by Robert Hauver
As the price of crude oil has fallen this year, most energy-related stocks have gotten hammered…except for some refining stocks. Why? Because lower crude prices mean lower feedstock costs for refiners, and actually pump up refiners’ profit margins. This fact has not gone unnoticed by the market, which has favored some refiners over other energy-related stocks in recent weeks.
This article covers 2 dividend stocks which are beneficiaries of this turn in fortunes – Marathon Petroleum, (MPC), and Phillips 66, (PSX). While these aren’t high dividend stocks, they do have high options yields, which we’ll cover later on in the article.
MPC has done much better than PSX in all of the following time periods:
MPC-PSX-PERF

However, PSX’s fortunes may be about to change – Goldman Sachs analyst Neil Mehta just added PSX and MPC to his recommended Buy list on 11/18/14, and PSX is up over 3.7% over the last week.
Profiles:
MPC is engaged in refining, transporting, and marketing petroleum products primarily in the US. It operates through 3 segments: Refining & Marketing, Speedway, and Pipeline Transportation.
MPC refines crude oil and other feed stocks at its 7 refineries in the Gulf Coast and Midwest regions of the US; and purchases ethanol and refined products for resale. Its refined products include gasoline, distillates, propane, feed stocks and special products, heavy fuel oil, and asphalt.
MPC also sells transportation fuels and convenience products in the retail market through Speedway convenience stores, and transports crude oil and other feedstocks to its refineries and other locations.
MPC markets its refined products to resellers, consumers, independent retailers, wholesale customers, marathon-branded jobbers, its Speedway convenience stores, airlines, transportation companies, and utility companies, as well as exports its refined products.
As of2/4/14, MPC owned, leased, and had ownership interests in approximately 8,300 miles of pipeline, as well as owned and operated 1,480 convenience stores in 9 states of the United States; and operated 5,200 independently owned retail outlets in the 18 states of the United States.

PSX – PSX Phillips 66 operates as an energy manufacturing and logistics company, operating in 4 segments: Midstream, Chemicals, Refining, Marketing and Specialties.
Refining buys, sells, and refines crude oil and other feedstocks into petroleum products, such as gasolines, distillates, and aviation fuels in the United States, Europe, and Asia.
Marketing and Specialties purchases for resale and markets refined petroleum products comprising gasolines, distillates, and aviation fuels in the United States and Europe. This segment manufactures and sells specialty products, such as petroleum coke, waxes, solvents, and polypropylene.
Midstream transports crude oil and other feedstocks to its refineries and other locations, as well as delivers refined and specialty products, also gathers, processes, transports, and markets natural gas; and transports, fractionates, and markets natural gas liquids in the United States.
Chemicals produces and markets ethylene, propylene, and other olefin products. It also manufactures and markets aromatics products, such as benzene, styrene, paraxylene, and cyclohexane, as well as polystyrene and styrene-butadiene copolymers.

Dividends: Click here to read more…

Disclaimer: This article was written for informational purposes only. Author not responsible for any errors or omissions.
Copyright: 2014 Demar Marketing All rights reserved

The 5 Best Performing High Dividend Stocks In 2014

by Robert Hauver
We thought we’d take a different approach in this article, and look at high dividend stocks within the S&P 500 that are performing well in 2014, vs. those that are oversold and/or undervalued. Not surprisingly, 3 out of 5 of these top dividend stocks are from the Utilities and Healthcare sectors, which are the 2 top sectors year to date.
TOPDIVSTKS-PROFILE
Performance through 3/17/14: A Financial stock, AIV, is the top performer of this group so far in 2014, but, interestingly, made most of its gains in January and February, and is only up around 2% in March.
Garmin, (GRMN), a tech stock, has made all of its net gains over the past month.
The more defensive Utilities stocks, PEG and AEE, show a more balanced performance, both rising in January and February, in addition to the past trading month.
TOPDIVSTKS-PERF

Dividends: With its 4%-plus yield, we’ve added Public Enterprise Group, (PEG), to the Utilities section our High Dividend Stocks By Sector Tables. You’ll also find Lilly, (LLY), in the Healthcare section of the tables.
TOPDIVSTK-DIV

Options: 2 of these dividend paying stocks also have fairly high options yields – Garmin and Lilly. We’ve listed July Covered Call trades for both stocks below. Both stocks have ex-dividend dates for their next quarterly dividends, prior to the July call expiration, so you can effectively increase your overall yield substantially, via the combo of the dividend and option yields.
Garmin’s call option payout is nearly 5 times its dividend, and Lilly’s call option pays 4 times its dividend.
GRMN-LLY-CALLS
You can find more details on these and over 30 other trades in our free Covered Calls Table.
Both trades have call options which are enough above the stock’s share/price, to amply replace the dividend income, via price gains, if your shares get assigned prior to the ex-dividend date.
Here are the major income scenarios for the Garmin trade:
GRMN-CALLINC
Cash Secured Puts: Our Cash Secured Puts Table also lists July put trades for Garmin and Lilly, (along with over 30 other trades). These put option trades both have strike prices which are below these stocks’ current price/share, thereby achieving a lower breakeven:
TOPDIVSTK-PUT
Financials:
TOPDIVSTK-ROE
Valuations:
TOPDIV-PB

Disclosure: Author held no positions as of yet in any of the stocks mentioned in this article at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

An Oversold, Undervalued Blue Chip Dividend Stock With High Options Yields

by Robert Hauver

This article will focus on the “Rodney Dangerfield” of drilling dividend stocks, UK-based Ensco plc, (ticker ESV), which has had big dividend and earnings growth, and looks poised to continue that trend. Unfortunately for its shareholders, the market has given ESV little respect over the past year, sending it down to an oversold price/share currently:
ESV1-CHART
ESV1-PERF

Undervalued Earnings: ESV has concentrated on modernizing its fleet, and has one of the youngest fleets in the drilling industry, with 9 new rigs delivered over the past 3 years, and 8 more to be delivered through 2015. This has helped it achieve higher margins than its competitors, and has also contributed to strong growth over the trailing 4 quarters:
EVS1-QTRLY

Analysts are estimating continued EPS growth in 2014, which, combined with ESV’s low P/E, show it to be undervalued on a PEG basis:
ESV1-PEG
Looking further into the future, ESV also has a low 5-year forward PEG ratio of .60:
ESV1-EPS5YR
More Valuations: ESV also looks undervalued vs. its industry on a Price/Sales and a Price/Book basis:
ESV1-PB
Strong Dividend Growth: ESV has raised its quarterly dividend all the way from $.025 in 2008, to $.50 in 2013.
ESV1-DIV
Options: Although ESV isn’t in the universe of high dividend stocks, it does have high options yields. You can substantially increase your yield on ESV’s dividends, via selling Covered Calls.
This March 2014 trade, from our Covered Calls Table, has a $55.00 strike price. The call premium pays 3 times what ESV’s next 2 dividends pay. You’ll also get paid this covered call premium now, vs. having to wait for ESV’s next 2 dividends to be paid out:
ESV1-CALL
We’ve listed the 3 major scenarios below for this call options trade:
ESV1-CALLINC
Puts: If you want to achieve a lower breakeven cost now, selling Cash Secured Puts is the way to go. This put options trade also expires in March 2014, and pays en even higher options premium, of $3.90, while giving you a breakeven of $51.10, which is just above ESV’s 52-week low. You can see more details for this and over 30 other Put options trades, in our Cash Secured Puts Table:
ESV1-PUT
Financials: As we mentioned above, ESV enjoys much higher margins than its industry averages. It carries a bit more debt, but it does have an Interest Coverage ratio of 11.52.
ESV1-ROE
Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author had no ESV stock or options positions yet at the time of this writing, but may initiate positions over the next 72 hours.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

A High Flying Dividend Stock With Double Digit Covered Calls And Put Options Yields

by Robert Hauver

Although we normally cover dividend paying stocks which also have options, this article focuses on a dividend stock that has already paid its annual dividend. However, as you’ll see below, its options yields heavily eclipse its dividends.
Sitting up at the top of our free Covered Calls Table is Himax Technologies, (HIMX), a semiconductor stock, which currently has a call option yield of nearly 14% for its December $9.00 call options. Although HIMX already went ex-dividend for its annual dividend in July, this Dec. covered call trade pays over 4 times HIMX’s annual $.25 dividend:
HIMX1-CALL
Since there aren’t dividends involved, there are two main scenarios for this trade:
A) Static – You’ll collect $1.15 in call options premium now, and keep your shares of HIMX, if it doesn’t rise above the $9.00 call price between the time of the trade and its December 2013 expiration.
B) Assigned – If HIMX does rise above the $9.00 call price between the time of the trade and its December 2013 expiration, your HIMX shares will be assigned/sold, but you will receive an additional $.53 in price gain, (the difference between the $9.00 strike price and HIMX’s $8.47 price/share).
HIMX1-CALLINC
HIMX also has very attractive put options. This December trade, from our Cash Secured Puts Table, pays just over 4 times HIMX’s $.25 dividend, and it offers a breakeven cost that is 18% below HIMX’s $8.47 cost per share. Considering that this stock has gained over 250% year-to-date, selling puts below its share price may be even more appealing than selling covered calls:
HIMX1-PUT
HIMX1-PERF
A big turnaround in earnings: HIMX has had negative earnings growth over the past 5 years…
HIMX1-PEG5YR
…but this has reversed itself rapidly during the most recent 4 quarters:
HIMX-QTRLYEPSREV
Analysts are predicting big Earnings growth for HIMX in 2014, due to its quickly developing relationship with Google, which has invested in HIMX’s subsidiary, Himax Display, in order to lock in HIMX as a supplier of LCOS modules for Google Glasses. Even after its huge price gains this year, HIMX still looks undervalued on a forward PEG basis, as it has a very low 2014 PEG of .34:
HIMX1-PEG

Additional Valuations: HIMX’s Price/Tangible Book is higher than its Industry averages, but its Price/Sales is lower.
HIMX1-PB
Financials: HIMX has much better Mgt. Efficiency ratios, a higher Operating Margin, and lower debt, than its peers:
HIMX1-ROE
Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was long HIMX shares and short HIMX put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

How To Buy This Blue Chip Dividend Stock 9% Below Its 52-Week Low

by Robert Hauver

One of the world’s most venerable blue chip dividend stocks, International Business Machines, (IBM), has gotten hammered by the market, since hitting a high of over $213.00 in March, and is now very oversold:

IBM-CHART8-23-13

IBM’s disappointing second quarter 2013 earnings report in late June didn’t help matters – sales and earnings were both down. One bright spot was that estimated services backlog at June 30 was up 3% year over year.

IBM-Q2-13QTR

Earnings Forecast 2013-2014: The average analyst EPS growth forecast for IBM in 2014 is currently 8.52%, giving it a 1.46 2014 PEG value, so we can’t say it’s undervalued on a growth basis:

IBM-AUG-PEG

However, on a P/E and Price/Sales basis, it does look cheaper than its Industry’s averages. Part of IBM’s problem has been the slowdown in Europe, but, it looks like that area may finally be pulling out of its recession in the next few quarters.

IBM-AUG-PB

Dividends: IBM has had a good dividend growth rate over the past 5 years, and increased its quarterly dividend again in May, to $.95, from $.85.

IBM-AUG-DIV

Thinking long term: Is a dominant company like IBM going to fade away? We don’t think so. Neither does Mr. Long Term himself, Warren Buffett- he’s a major buyer of IBM, having bought shares since Q3 2011, through Q2 2013. IBM is now Berkshire Hathaway’s 3rd largest holding, at 14.62% of its portfolio.

How to play it safe with long-term put options: If you’re leery of IBM falling further, your best bet may be to sell cash secured put options below IBM’s share price. We’ve laid out a January 2015 put trade below, which gives you a breakeven cost of $166.40, which is over 9% below IBM’s 8/23/13 share price of $185.16. The Jan. 2015 $185.00 put option pays well over 3 times what IBM’s dividends will pay over the next 17 months. (Please note that, unlike covered call sellers, put sellers don’t receive dividends.)

You can find more details on this and over 30 other put trades in our free Cash Secured Puts Table:

IBM-AUG-PUT

We also list a covered call trade for IBM, along with over 30 other covered calls trades, in our free Covered Calls Table.

Financials: Thanks to its ongoing stock buyback program, IBM has a very high Return On Equity ratio of over 83%. Its Operating Margin is also much higher than industry averages. It carries more debt, but it has a strong Interest Coverage figure of 41.85:

IBM-AUG-ROE

Performance: IBM is just 1.43% over its 52-week low, as of 8/23/13. As we’re heading into the market’s weakest months, Sept. and Oct., it may go lower, and offer even more compelling, higher put-selling yields and lower long term breakevens.

IBM-AUG-PERF

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short IBM put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

2 High Yield Covered Calls Trades

by Robert Hauver

Looking for quick income from your trading? There are 2 trades sitting near the top of our Covered Calls Table, which offer annualized yields of well over 25%. These aren’t high dividend paying stocks, but, rather, they’re dividend stocks with high options yields.

These 2 stocks couldn’t be more dissimilar. One is a U.S. homebuilder, and the other is a U.S.-based, multinational tech giant:

MDC Holdings (MDC): MDC’s homebuilding business activities include the purchase of finished lots or development of lots for the construction and sale of single-family detached homes to first-time and first-time move-up homebuyers under the Richmond American Homes name. The company’s financial services business activities comprise the origination of mortgage loans primarily for homebuyers; provision of third-party insurance products to homebuyers; and title agency services to homebuyers in Colorado, Florida, Maryland, Nevada, and Virginia. It also provides insurance coverage on homes sold and for work performed in completed subdivisions; and re-insures the claims. M.D.C. Holdings, Inc. was founded in 1972 and is based in Denver, Colorado.

Cisco Systems (CSCO): Cisco designs, manufactures, and sells Internet protocol (IP) based networking and other products related to the communications and information technology industries worldwide. It offers switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, access points, and servers, as well as function as aggregators on local-area networks and wide-area networks; and routers that interconnects public and private IP networks for mobile, data, voice, and video applications.

Dividends: MDC, which pays a $.25 quarterly dividend, paid out its first 3 2013 dividends in December 2012, to help its shareholders avoid higher dividend tax rates in 2013. Not to worry, however, since you can recapture this amount and more, via selling covered calls. (See below)

CSCO made a hefty raise to its quarterly dividend in late 2012, upping it by over 21%, to $.17, from $.14. CSCO also goes ex-dividend on 7/1/13.

Options: MDC currently has an out-of-the-money September $37.00 put which pays $2.65, which equals 7.25%, or 28.46% annualized for this approx. 3-month trade. If MDC moves to $37.00 or higher, your MDC shares will get assigned, resulting in an additional $.46/share gain, for a total potential annualized assigned yield of over 33%.

(You can see more details on this and over 35 other call option trades in our free Covered Calls Table.)

CSCO has a shorter call expiration, a July $25.00 call option, which pays $0.46, offering you a 27.57% annualized yield. This call is also above CSCO’s share price, so if CSCO rises to $25.00 or above, you’ll receive an additional $.18/share.

MDC-CSCO-CALLS

There are also attractive put options selling opportunities for MDC, which you can learn more about, in our free Cash Secured Puts Table.

Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options, and long CSCO shares at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.

How To Sell Cash Secured Puts

by Robert Hauver

There’s a low-profile, conservative trading technique that we often utilize to “get paid to wait”, for stocks that we want to take a position in.
Have you ever wanted to buy a stock, but its current price seems too high, or the market may have gotten ahead of itself? Instead of just buying this stock, consider selling put options for it.
As it turns out, the put option premiums that you can receive can often be higher than a stock’s next few dividends, even on high dividend stocks.
Here are some important principles and definitions to remember when selling options:
1. One option contract = 100 shares of the underlying stock.
2. The further out in time that you sell an option, the more money, (higher premium), you’ll get paid. Why? Because options have time value, i.e. “time is money”
3. Put option sellers don’t receive dividends. We list dividends in out our Cash Secured Puts Table so you can compare them to the put premiums.
4. Strike Price: The price you’re agreeing to buy the stock for, up until the expiration date, in return for being paid a Put Premium now.
5. Bid: The price that Put or Call buyers are willing to pay.
6. Ask: The price that Put or Call sellers are willing to sell at.
7. Many brokerage sites also list the Bid and Ask quantities, which is helpful – if there are many more bidders than sellers, you may have a chance of selling your put or call options at a higher price/premium than the current bid.
8. Volume/Open Interest: Volume is amount of contracts which have changed hands today. Open Interest is the amount of contracts which haven’t yet expired for each call or put option. Thinly traded options have lower Open Interest.
9. Cash Reserve: This equals the amount of $ that your broker will hold in your account, to ensure that you have enough funds to buy the underlying shares. This amount varies from approx. 25% up to 100%, depending on the type of account- IRA’s will need a 100% cash reserve, whereas taxable accounts approved for Option Level 3 may have only 25-35% held as cash reserve per put selling trade.

TRADING EXAMPLE: To illustrate how to sell cash secured puts, let’s look at MDC, which has high options yields, and was trading at $38.91 at the time of this writing.
1. Go to the option chain for MDC, and select/find “Puts”. (Many brokers’ sites let you select puts OR calls, which makes the data less confusing.)
For each option you’ll see the Strike Price, the Last or most recent price, the Bid prices and quantities, the Ask prices and quantities, today’s Volume, and the current Open Interest (OI).
2. Look up the values for the closest months, (there’s usually a pulldown menu), to see if there are any good yields on Put strike prices below MDC’s current price. Even though there are June and July expirations, we chose the September expiration, further out in time, since it gives you a bigger put premium, (payout), which, in turn, lowers your breakeven.
MDC-PUT-5-28-2013

3. Compare the Bids for the Strike Prices that are below the stock’s price. If you want to be more conservative, choose a lower strike price, for a lower breakeven. If you want to be more aggressive, choose a high strike price, which will pay you more, but give you a higher breakeven.

4. Compare the breakevens to the stock’s 52-week low and high, to give you an idea of its range. You can find this data on the far right side of our Cash Secured Puts Table.
MDC-PutTable
5. We chose the September $38.00 put in our example. It pays $2.70, which gives you a $35.30 breakeven. Since the Bid Quantity (BidQ) is 204, and Ask Quantity (AskQ) is only 97, there’s a good chance that you may be able to sell the $28.00 put for more than $2.70.

6. Compare the upcoming dividends between now and the expiration date: Is the put bid price higher than these dividends? In some cases, it’s much higher. In our example, the Put Bid Premium is nearly 10 times MDC’s next dividend payout.

7. Look at the Put Options Yield: Our table lists all put yields as annualized because there are many different expiration dates. In this example, the Sept. $38.00 put option pays $2.70, which is a 7.1% nominal yield, for a 116-day term, which equals 22.95% annualized.

8. Cash Reserve: For each contract that you sell, your broker will reserve/hold in your account the $ needed to buy 100 shares of the underlying stock. In our example, we sold one $38.00 put, which equals $3,800.00 Cash Reserve (100 x $38.00 MDC share price).

9. Placing the Trade: Click the “Trade” link for the put option you want to sell. This should take you to a Trading module.
>1. Choose “Sell to Open” in the Action pulldown menu.
>2. Choose “Limit” in the Order Type menu.
>3. Enter your desired Selling Price in the Limit Price field.
>4. Select “Day” in the TIF pulldown menu
MDC-STO
When you’ve made all of these entries, click the “Verify Order” button. This will bring up a summary of your order which will list the Expiration Date, the Put Strike Price, and your selling price.

Yikes! What have I gotten myself into?! In our example, we sold one September 2013 $38.00 put for MDC, which obligates us to buy 100 shares of MDC at $38.00, up until this put option’s Sept. 21, 2013 expiration date. BUT, our real cost is only $35.30, because we got paid $2.70/share, ($270.00/contract sold), for selling the put option.

After selling 1 put, you’ll receive $270.00 into your account (upon settlement in 3 days or less) for the contract you sold: (1 put corresponds to 100 shares of stock, 100 x $2.70 put premium = $270.00).

You’d have 1 of 2 outcomes at or near the expiration in September (usually options aren’t exercised or assigned until right around their expiration date):

1. Assignment: If MDC declines below $38.00, you’d be assigned (sold) 100 shares of MDC for every put contract you sold.
2. Non-Assignment: If MDC doesn’t decline to approximately $38.00 or less, your cash reserve money gets released, and you’ve made $270.00 for every contract you sold, less commissions.

In scenario 1, you’d end up owning MDC at a cost basis of $35.30, which is 10.23% lower than its current $38.91 price. There are two ways to view this outcome: Some traders would say that if you’d just waited and done nothing, you would have been able to buy it for $35.30 or even less, anyway, if the market went down.
However, you wouldn’t have had the profit opportunity that selling the put gave you, had you just waited for a market downturn. In addition, you received the put cash immediately, which you can put to use now, AND you’ve determined your potential buy price at $35.30.

Timing: Since selling puts is a conservative bullish strategy, it’s best to sell them after prices have fallen, since put prices move inversely to the market. Look for a “down” day or week when the stock is falling in price – this downward action will inflate the put premiums you can sell for, and lower your breakeven.

Need more info? You can also find more definitions in our Options Glossary page.

Author – Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was short MDC put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.