COP has had some recent weakness after the split, partly due to declining oil prices. It’s one of my major holdings and I have no problem if I get assigned 100 shares at what I believe to be a great price.
So today I sold 1 COP Aug 18 ’12 $50 PUT @ 1.96. I believe this is a win/win scenario. If COP stays higher than $50 for 3 months then I am paid $196 to wait. If COP dips below $50 then I will get assigned 100 shares of COP @ $50/share. My cost will be $48.04 / share before commissions. This would be a YOC of 5.5%!
Makes sense, you will win either way. Do you use 2 seperate accounts for dividend growth investing and options? How do you allocate funds between the two? Do you use profits from options to buy more dividend stocks? This is interesting.
Hi CI,
Thanks for stopping by. I’ve been very successful selling puts so far. I am mainly selling puts on companies that I have or want in my DGI portfolio anyways. It allows me to get an entry price that is lower than the current market. The only drawback would be if the stock took off and didn’t get assigned. I am still paid for waiting but I could miss out on a current good buy.
To answer your question about my accounts. I do keep a separate “speculative” account that I use for options trading. The cash reserve requirement is hard to explain but this should give you an idea. If all of my options ended up getting assigned I would need $25,150 in cash. However I’m currently only required to have $6000, less than 25%, in the account. This amount fluctuates with the price of the options. I can also transfer money instantly from each of my Etrade accounts: brokerage, speculative and savings.