High Implied Volatility: Some Premium Selling Ideas

From an options perspective, the bottoming of the equity market provides an unusual opportunity since the options implied volatilities that have risen to abnormally high levels will start declining as the market turns higher. This usually provides many opportunities to sell options on good quality stocks having high options volatilities that are now declining.

Because there are still a number of concerns including the US elections, the upcoming  G-20 meeting, economic stimulus proposals, a homeowner’s bailout plan, and earnings estimate reductions, we think the best approach is to use good quality stocks paying good dividends.

There are many options opportunities now available. Here are just a few of the many covered call ideas we found. They are all dividend paying stocks. Covered calls are for those who prefer to buy the stock and then sell options in order to benefit from the dividends while enhancing the yield by selling premium. Do the fundamental research, looking for good quality stocks that can maintain their dividends and are least likely to have their earnings estimates reduced. Here are some ideas to get started.

Covered Calls

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The “O Price” in column 7 are the options prices as of Friday. Remember, Monday’s prices will be slightly less due to time decay. Column 8 “IV” is the Implied Volatility in percentage for the specific option while “F-IV” in column 9 is a Forecasted Implied Volatility. Column 10 “Decline” represents the potential estimated total percent point decline in implied volatility, but not necessarily before the specific suggested option expires. The suggestions have been ranked in order of their greatest potential decline in Implied Volatility.      

Disclosure: none

Comments

[captainccs:]

Jack Walker, you are right on the money. This is what I have been doing recently but not necessarily with the stocks you mentioned.

2008 Nov 03 07:59 AM

[rayman:]

love selling calls....great article
about time someone covered it
thanks to the author!!!

some are selling puts, not this article was nice and basic love collecting the divi too by holding the stock and selling calls around it!

2008 Nov 03 05:49 PM