AFLAC, Inc ($AFL) has been on a nice run since it bottomed out recently. Sadly, not far from the bottom I sold covered calls at the $36 strike for November only to see AFL run up past $36 and send these covered calls in the money. I thought about buying them back, but decided to go another route today. While AFL was trading at $39.05 I sold two AFL November $36 naked puts for $1.60 each and received $319.31 after commissions.
With so much volatility in the markets lately there’s no telling where AFL is going. I think it’s a good company though and wouldn’t mind owning more at a cost around $34.41. If my current 200 shares get called away, then that will mean my new naked puts were not assigned and I’ll move on to something new.
The best part about volatility being so high lately is that selling new options can be very profitable when they work out. The risk might be perceived as higher, but it might not really be since stocks are already off their highs and the upside potential might be greater than the downside risk from here. Since AFL has bounced so much recently, the volatility is very high. On this particular put option the implied volatility is listed at 57+%. The risk isn’t small in the short term, but the company is still strong and pays a good dividend (3.08%). Due to the high implied volatility, I stand to make 4.6% if the put finishes out of the money. That comes out to better than 42% annualized. Those are the kinds or risks I don’t mind taking, even in a choppy market. If assigned, my average cost per share will drop substantially since I bought my first 200 shares at $50.00.
I made a recent trade on AFL – my first ever was a couple of years ago when I let emotions get the better of me and sold in February 2009 for $15.83 (having bought in November 2008 for $30.97).
I’m currently long 100 shares and short a November 40 Covered Call. If the past year is anything to go by, I expect them to get called away a week early for the dividend – unless, of course, there’s a drop in the share price from here.
Looks like you timed it better than I did this time.
Looks like both of us jumped the gun on the AFL Covered Calls but you made the wise move of selling these Naked Puts.
The ex-dividend date is the Monday before expiration so I’m going to save some commission costs and just let them get called away at that point (it’s only 2 weeks from Monday after all).
You aren’t kidding. I knew I should’ve bought the 36 strike call back once the markets turned. I bought the 50 strike call back this morning. About to write the post now.
I have no doubt our ITM covered calls will be assigned before the ex-div.