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.

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