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My FI Journey » Investment portfolio » Recent Put Options Sale: NSC and INTC

Recent Put Options Sale: NSC and INTC

Stock BuysSelling long-term cash-secured put options can be a great way to boost your yearly income.  Recently I sold two long-term cash-secured puts against NSC and INTC.

NSC Jan 18th, 2014: $60 strike for $6.30.  As a result of this trade $6,000 of my cash is locked down for the duration of the put, but I pulled in $630 from the sale, that is about a 10.5% annual return.  NSC currently pays an annual dividend of $2.00.  If I am assigned the stock, my yield on cost will be ~3.7%.  Norfolk Southern Corp (NSC) is a freight railroad transportation service that operates throughout the Eastern US. Approximately 30% of its freight revenues come from transporting coal from mines to power plants, with another 50% of its revenue coming from the transport of general merchandise, the rest of its revenues coming from the transport of automobiles and chemicals.  Currently, the stock is trading very near it’s 52 week low, one of the criteria that I look for when I’m considering writing a long-term put.

INTC Jan 18th, 2014: $20 strike for $2.30.  As a result of this trade $2,000 of my cash is locked down for the duration of the put, but I pulled in $230 from the sale, that is about an 11.5% annual return.  INTC currently pays an annual dividend of $0.90.  If I am assigned the stock, my yield on cost will be ~5.0%.  Intel (INTC) is the world’s largest chip maker for microprocessors and personal computers with three main business segments focusing on PC clients, data centers, mobile devices and other consumer electronics.  Currently, the stock is trading very near it’s 52 week low, which is one of the criteria that I look for when I’m considering writing a long-term put.  See my recent dividend stock analysis of Intel.

Both of these put options carry the risk that I might be assigned the stock.  In that case, the cash that has been locked down (“secured”) will be used to purchase the stock at the strike price indicated.  While this is not my optimal scenario, I feel that this is an acceptable risk given my overall positive opinion of these companies.

Disclaimer:  I am short NSC and INTC.  I am also long INTC.  See my portfolio or my current holdings.  I am also considering going long NSC in the future.

Readers:  What options are you writing or thinking about writing?  What stocks are you looking into?

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7 Responses to "Recent Put Options Sale: NSC and INTC"

  1. I really like these moves. I need to look more into longer dated puts for larger premiums. I had a lot of fees that ate into my profits last year. I like both of these companies long-term.

    1. Thanks. It will probably get a little bit shaky in March when we go through another round of debt ceiling madness, but I’m hoping that by the end of the year I can buy these two back and then open some new puts.

  2. I’m not a big fan of the very long dated put because so much can happen in a year. While you’re still earning really good returns I think you can do better by cycling through shorter option lengths. Plus you have to account for the 3-4 dividends you would have received in that time. But to each their own.

    Also, I know I struggle with the idea of locking that money up for such a long time. I like to do it but then when I’m short on cash I hate that I can see that money sitting there but I can’t put it to work. I need to open a second brokerage account to sell longer options for that reason.

    I do like the moves though, 10% plus annual returns on companies you want to own more of is hard to beat.

    1. If I can’t pull in 10% annual, I won’t do it. The puts are designed to be cash cows with the downside of owning a dividend growth stock.

      I agree that a lot can happen in a year, but the short term can by extremely volatile as well. Especially with an economy that is still bent on moving sideways.

  3. Martin says:

    I like INTC for put selling, because it is a stock I would like to own in case of assignment. As far as covered calls I like to pick stocks with potential growth so I will be assigned and make the total return on the trade. I do not want to be selling calls on stocks I already own for dividend income. I do not know yet very well how to protect myself against assignment. Maybe later.

    1. Protecting yourself against assignment is hard. That’s the risk when you buy and sell options. I protect myself by writing options against stocks that I would be happy buying. I don’t write covered calls for the reasons you stated above. I don’t want my dividend paying stock pulled out from under me. On the other had, if I wanted to get rid of a stock, I would consider writing covered calls against it.

      1. Martin says:

        I agree with covered calls with you, thus I decided to do buy-write trades and buy only stocks which I do not care when they are called away. For puts I need more cash in my account.

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