My income from this put was $590. The stock price was approximately $68/share when the contract expired, so I bought the shares at $70/share ($64.10/share including the premium, $70 - $5.90).
Naturally, I turned right around and wrote calls on my new FLS stock. I wrote 1 contract January 2010 FLS calls at a strike price of $80, for $4.20/share. The period of the call is about 6 months, which is about as long as I'm comfortable with. So, at this point I have bought FLS for $70/share, and I have earned $10.10 ($5.90 + $4.20) on my stock. That's a 14% return (I'm rounding down to keep it simple and account for transaction fees, which vary by which broker you choose). If my shares are called away in January, I will have made a 28.7% return ($80 strike - $70 purchase price = $10. $10 profit + $5.90 put income + $4.20 call income = $20.10 total income. $20.10/$ 70 = 0.287 ). If my shares aren't called away in January, I'll still have the premiums, plus my shares. Here I am not including the dividend, which is a 1.7% yield at current prices.
I have also written August $45 puts on Mosaic. At 36 days, this is a shorter term than I would usually consider (I like a term from two to six months). I chose this option because a)I would be content to buy MOS at $45 and b) this put offered an unusually good return relative to longer-termed options. I would consider $40 and $45 puts on this stock (currently trading at $48).
Compare the August, September, and December puts, at 33 days (1.1 months), 64 days (2.13 months) and 155 days (5.17 months) respectively.
As you can see in the screen cap, the percentage return per month (premium / share price = percentage return. Percentage / time period (in months) = percentage return per month) is unusually attractive for one option; the August $45 put.
Even though the dollar value for the December $45 puts is the highest, the August $45 puts offer the best value. Since I also would be pleased to purchase this stock at that price, I wrote that put. If I wasn't willing to pay $45 for the stock, I wouldn't consider it no matter how nice the return looked.
FLS: When your chickens come home to roost, remember to collect the eggs. When you get income from puts, and then the shares are put to you at your strike price, consider adding to that income by writing calls. Be sure you would be willing to sell at your call's strike price.
MOS: It's your percentage return, not the dollar amount of the premium, that should draw your attention to the stock. No put has value to me if I'm unwilling to buy at the put's strike price.
For both: Write calls only on stocks you'd be happy to sell at that strike price. Write puts only on stocks you'd be happy to buy at that strike price. I write options as a way to generate income within my overall investment strategy, not as speculation.
