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.

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