I’ve been eyeing more and more dividend paying stocks recently. That’s somewhat atypical for most option sellers, but for some of these I’m considering selling closer to the money naked puts. That’ll either give me a better premium to walk away with if the stock stays flat to higher or will allow me to buy a stock that I’d consider owning for a longer term while I take in the dividends as a built in premium of its own (and continue to sell covered calls while holding it). Last week my eyes turned to AFLAC, the Columbus, GA based insurance company. I can’t remember the first article I read touting AFL as a good stock pick, but have since found a few more and agree with the authors that AFL has a good road ahead. I even like that their latest commercials are explaining their product better than just using their famous duck and tag line for name recognition.
I entered my first attempt on AFL yesterday morning for the March 50 strike puts for $2.00 each, but the order didn’t hit and AFL took off soon after. I thought about chasing it, but figured in this market patience might be a better approach. When I saw AFL retrace its steps this morning I lowered my limit order and within a few minutes my order hit. While AFL was trading at $51.05 I sold two AFL March 50 naked puts (AJOOX) at $1.90 each and received $378.60 after commissions. The February options were somewhat attractive too, but I like what I’ve been doing lately in pushing out my time horizon a little farther for bigger premiums. Since I don’t mind owning AFL and will miss the February dividend either way, I decided building my collection of options expiring in March was a better move.
Selling these naked puts $1.05 out of the money and taking in $1.90 per contract gives me close to a 6% cushion for AFL to dip before I loose money. Any finish at March options expiration above that and I’ll walk away with a profit. The chart for the past couple of weeks shows a trend line offering support at today’s intraday lows. The trend line of higher lows for the past year shows support likely closer to $49.50-50.00 in the near-term and rising. I could really see AFL up to $55.00 within a few months without breaking a sweat.
I had a pretty good day yesterday for research. I did a lot of reading and loaded TD Ameritrade’s trade trigger tool with about a dozen stocks I’m considering trading on if they drop into my expected trading range. I didn’t leave any limit orders on these past yesterday, but will probably go in and attempt some new ones today while the market is down. My AFL naked puts gives me enough premium to stay on target for my goals, but I’d like to have a little more in play to make up for mistakes I’ll make down the road.
Hey Buddy, I trade the S&P 500 futures options and will like to sell a naked put for Feb expiration, is it possible for me to close the trade when am making/profit or loss before the expiration date.
Would be glad to read back from you
Tosin
Tosin, I don’t trade futures options, so can’t give you a clear answer. Check to see if they are American or European style options. I think both might be available for S&P 500 future options, so check with your broker.
The basic difference between the two is:
European options may be exercised only at the expiration of the option.
American options may be exercised at any time before expiration.
The options I blog about are American options.