BAC - Open Position
Written on December 1, 2008 – 1:05 pm | by admin
Today I opened a position in BAC (Bank of America). I was looking at this stock because it goes ex-dividend on 12/3 and was yielding around 8%. Since the market is so volatile these days, I wanted a stock/option combination that provided good downside protection while still giving a good return (3%+). BAC has options all the way down to the $2.50 strike for December. That is the strike that I am using in my transaction.
Buy: 200 @ $14.50 ($7.00 commission)
Initial Investment: $2907
Sold: $2.50 strike @ $12.00 ( $9.50 commission)
Net Investment: $516.50
Expected Dividend: $64.00
Expected Return: 6% (-6.4% if called before 12/3)
I duplicated this transacation again, once I received the money from selling the option.
My reason for taking the risk of getting called away early is that a person wouldn’t buy a deep in the money option just to get the $0.32 dividend. Now that the market has tanked since I made this transaction, the likelihood of getting taken out early is even less.
