Zacks highlights commentary from People and Picks Member «DiviMO».
For more Voice of the People, visit http://at.zacks.com/?id=7872
Featured Post
Looking at Mr. Softy
Microsoft (MSFT) is priced at 24.29 (Friday’s close). It pays a low dividend of 2.64%. It’s next dividend payment date is 9/8 and ex-div is 8/16. The quarterly payment is $16.00 per 100 shares. However, it has a double-digit dividend growth rate for the last 5 years.
Overall, not an attractive stock to own or to own for dividend payments.
However, it is attractive as a Naked Sell Put play.
The 20AUG $23 premium is $55.00 per contract
The 20AUG $22 premium is $23.00 per contract
Much better than buying the stock and getting $16.00 per 100shr in Sept.
A business should always have a game plan. The plan should account for different conditions. Here are the conditions available with selling naked puts on MSFT.
SELL Naked Put on MFST
1. Get premium, option expires, net is premium received. Results in net gain.
2. Get premium, option is assigned at strike price, own stock at strike price. Result is net gain on option premium and own stock at lower price point.
3. Get premium, close by buying-to-close, write new naked put at further out month. Result should be net gain.
4. Get premium, decide not get assigned or not to write further out put and close put by buying-to-close. Likely to result in net lose
Condition No. 4 is where you don’t want to own the stock and you don’t want to ladder down Puts to a further out month. This is a condition where you think the stock is going to tank further and you want out of the play. It results in a loss, the difference between the premium received and what your cost is to close the put.
Condition No 4 is also where you have a profit and what to close the put to avoid the change being assigned to buy the underlying stock.
Conditions No1 and No 3 result in a net gain. Condition No 2 is because you elected to be assigned to buy the stock and did not want to do Condition No 3. Your gain is the premium on the Put and you own the stock at the lower strike price. This might have been your game plan all along if you wanted to own the stock at the strike price.
Condition No 3 is where you don’t want to own the stock and your main priority is to receive premiums by laddering down on selling naked put options.
The plan this week is to consider writing naked-puts-to-open on the 20AUG 22’s and/or the 20AUG 23’s and claim the premium. If I was to get assigned to purchase the stock, I would be buying the stock at the low for the year.
Footnote: There is some mis-conception about the term ‘naked’. It refers to the fact that the underlying stock is not owned or ‘covered’. Another term used is ‘cash-secured’ puts. In other words, one must have the capital to purchase the stock is one is assigned. However, the term ‘naked’ still applies as one writes (sells) puts without owning the underlying stock, in otherwords, naked or uncovered.
The most recent picks by «DiviMO» are:
A buy rating on TICC Capital (TICC),
a buy rating on Navios Maritime (NM) and
a buy rating on Leggett & Platt (LEG).
About the Zacks Community
In 2008, Zacks Investment Research launched PeopleAndPicks.com, a stock-picking website where members of the Zacks community can test their strategies and share ideas with other members. Each user is scored on the accuracy of his or her picks, and top users are rewarded with free products from Zacks. Registration is free.
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it’s your steady flow of Profitable ideas GUARANTEED to be worth your time!
