International Business Machines (IBM $174.46, up $1.17) is still in the low end of the range over the last year. The 1 year range is around $172 to $215.
If you like IBM at these levels for the next 1-2 years, an idea might be to sell the March 165 puts at around $1.30. If IBM doesn’t close under $165 at the March expiration in about 43 days, you collect the premium and a more than decent yield for a 43 day trade. If the stock closes under $165 at March expiration, you buy the stock at $165 minus premium of $1.30 you sold for a purchase price (before commission) of $163.70. That is about 6% lower than the current stock price of $174.42. From the close on January 31 of $176.68, you would be buying the stock about 7 ½ % lower.
If you don’t like IBM over the next 1-2 years, would I do this ? NO. If I like IBM over next 1-2 years, would I do this every 30-40 days for monthly income? Yes.
What strike would I sell every 30-40 days? I would pick the short put by selling a strike with a delta around 20. What if I don’t want to spend big bucks and buy the stock when assigned? Simply close out the short put when the trade goes against you.
Any questions on this trade or options related, e-mail me. Dan