With the November options expiration approaching us Friday, I thought I would outline some trade ideas on stocks I wouldn’t mind going long on, that would return good percentages by Friday (as of market close Friday November 13, 2009). When using the buy/write option strategy, it is important that you are willing to hold the security in case it is below the strike price at options expiration. I have put together a list of 30 stocks which will return a nice percentage gain if they are above the strike price as of November options expiration, but will also protect (lower cost basis) to the downside in case the stock sells off slightly and expires below the strike price. The list below is a very tall one, and for your convenience I have ranked the securities in order from the largest potential % return to the least. To get a better understanding of stock options and different option strategies please check out my Simplified Stock Option Trading E-Books. Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are riskier.
To understand the table, I will give a detailed example on Suntech Power (STP) below. Also note STP Reports earnings Thursday which will give even more implied volatility and a higher premium to the call options.
Sell the Suntech Power November 14 strike call option. The premium received from the call option would give a downside protection of 4.01%. If the stock is assigned at options expiration on November 21, 2009 the total return from this position would be 6.05% in 5 trading days.
| Company | Ticker | Strike | Potential Return % | Protection % |
| Suntech Power | STP | 14 | 6.05 | 4.01 |
| Palm | PALM | 12.5 | 5.97 | 5.16 |
| Dow Chemical | DOW | 30 | 5.83 | 0.46 |
| Las Vegas Sands | LVS | 18 | 5.69 | 2.19 |
| Rambus | RMBS | 19 | 4.76 | 2.05 |
| Walter Energy | WLT | 70 | 4.16 | 1.61 |
| First Solar | FSLR | 120 | 3.51 | 2.05 |
| A123 Systems | AONE | 16 | 3.47 | 4.34 |
| Goldcorp | GG | 45 | 3.45 | 1.34 |
| Textron | TXT | 20 | 3.23 | 2.27 |
| Apple | AAPL | 210 | 3.11 | 0.40 |
| Caterpillar | CAT | 60 | 3.03 | 0.95 |
| Dendreon | DNDN | 29 | 2.90 | 2.70 |
| Amazon | AMZN | 135 | 2.76 | 1.23 |
| MasterCard | MA | 240 | 2.73 | 0.48 |
| American Express | AXP | 41 | 2.73 | 1.12 |
| Citigroup | C | 4 | 2.72 | 3.95 |
| Goldman Sachs | GS | 180 | 2.69 | 0.86 |
| Bank of America | BAC | 16 | 2.25 | 2.13 |
| Brocade | BRCD | 8 | 2.11 | 2.73 |
| JP Morgan | JPM | 43 | 1.98 | 1.75 |
| Cisco | CSCO | 24 | 1.90 | 0.67 |
| GOOG | 580 | 1.79 | 0.40 | |
| Alcoa | AA | 13 | 1.67 | 3.03 |
| Baidu | BIDU | 430 | 1.58 | 2.16 |
| Baxter | BAX | 55 | 1.39 | 1.06 |
| Visa | V | 80 | 1.26 | 1.26 |
| Potash | POT | 100 | 1.09 | 3.84 |
| Ford | F | 8 | 0.83 | 5.71 |
| Research in Motion | RIMM | 60 | 0.78 | 5.07 |
To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As a shareholder of several of the stocks above, I’ve written them out for a variety of strikes for the November options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.
The list above are stocks which I wouldn’t mind holding in my portfolio if they did not get exercised at expiration. These are just examples and are not recommendations to buy or sell any security; if you’re more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.
Disclosure: Long AA, AAPL December 200 Call Options, AXP, BAC, BRCD, GOOG January 2011 300 Call Options, LVS, PALM, STP, V, Short AA November 14 Call Options, AXP November 40 Call Options, BAC November 17 Call Options, BRCD November 10 Call Options, GOOG November 580 Call Options, LVS November 20 Call Options, PALM November 17.50 Call Options, PALM November 12.50 Put Options, V November 80 Call Options
