I logged into my account this morning and saw NSC was down 7.5%. Norfolk Southern lowered their Q3 earnings and shares were hit hard.
NSC is now trading at my cost basis. Instead of buying more shares, I sold 1 March 16 '13 $67.50 Put @ 5.17. If assigned I would own 100 shares of NSC at a cost of $62.33/share. This would lower my total cost basis of my 133 shares to $63.71 and increase my YOC to 3.14% from 2.95%.
If the shares are not assigned I keep the premium of $517! This is the largest premium I've ever received from selling a put on an individual stock. I still like NSC as a long-term holding and will be happy however this trade turns out.
I've updated this trade on my options tab.
I see you also noticed the drop in NSC today. That's a very nice option premium -- even if the shares don't get assigned you will have done well.
ReplyDeleteHi DGM. I think it is a win-win. I either own additional shares of a great company at a discount or am paid a hefty premium for waiting. I may go ahead and add more shares if there is further weakness tomorrow.
DeleteVery nice strategy to buy in at a great price. I like the idea of selling puts and will have to start doing that in the future.
ReplyDeleteThat's a FAT premium ;)
Best wishes!
Hi FI Fighter and thanks. I see you made a nice purchase yourself.
DeleteI really just started selling a lot of puts this year and am doing well if I have to say so myself. My income from puts is higher than my dividend income. It will be interesting to tally the profits at the end of the year after fees and taxes and compare to my dividend income.
I like the put option. If I had the capital I'd be selling a Dec put. Probably the $65 or $62.50. You're raking in those option premiums.
ReplyDeleteThanks PIP,
DeleteActually one of the best things about selling these puts is I don't have to keep the full amount of cash in the account to purchase the shares if they were assigned. I only have to cover the risk which can change daily.
For this NSC put, I believe I needed to add about $1500 in cash to cover the position. You can see all of my open options currently on my options tab, I'm required to have less than 5k in my options account currently to cover them all. If I was assigned all of these puts I'd need to come up with over 19k,and I'm not counting TSM because it's in a different account.
The margin maintenance requirements according to E*Trade for naked puts are:
- Equity and Narrow-Based Index Options:
Proceeds of the sale plus 20% of the underlying value less out of the money amount OR
proceeds of sale plus 10% of strike price, whichever is greater