Diversify Your Investment Options
I want to revisit the subject of selling options to generate returns and as a method of backing into undervalued stocks. After the December rally through today, I find that a pretty good percentage of my short option book has expired worthless, so I am on the hunt for new ideas to sell some premium. As I mentioned in Tuesday's column, I am not in a rush to sell premium. I am finding the ideas and building a list of candidates for cash secured put selling when volatility picks up and prices move down. In some cases I am calculating the option price I want to collect and entering good to cancel orders but for the most part I am loading the gun before the shooting starts so I can act quickly and decisively when the time comes.
One stock that I own and have sold puts on two times in the past year is Callaway Golf (ELY). The earnings report yesterday was uninspiring but the market apparently like the guidance issued by management as the stock drifted up during the day. The company also showcased its new product line for 2012 including the new fully adjustable RAZR drivers. The big story with this stock is that golfers are not consumers -- they are addicts. As consumer confidence improves, we will see pent-up demand cause a sales explosion for Callaway products. Until then, if I can sell the May $6 puts for $0.50 or more and back into the stock below tangible book value, I think it is a good trade. This is one where I will go ahead and enter the good-'til-cancelled order and hope it hits....501 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.
Already a Subscriber? Please login.