Marco Hickey's  Instablog

With less than 2 weeks until the next option expiration, I wanted to put together a list of buy/write option strategies on strong stocks (based on one of my methods of finding bullish stocks), that had a greater than or equal to 50% current probability of expiring in the money on July 18, 2009 (closest current option expiration), and gave decent downside protection as well as a decent return if the option expires in the money and the stock is sold at the strike price.

The list below includes: Company name (sorted alphabetically), Ticker, Strike Price (all for July options expiration), Downside Protection in % (noted by Downside %), Return on Buy/Write option strategy in % if stock gets called out at expiration (noted by Return %), Current probability in % that current option market is factoring in, that the stock meets or exceeds strike price at expiration (noted by % Probability), and if the stock is currently above the strike price known as in the money (noted by IN$).

The table above allows you to see which stocks (out of my list of 20 chosen) have the best chances at the highest possible returns ("best bang for your buck"). I use this method to choose which stocks I'll be buying to write out immediately. As a higher risk investor, from this table I am most interested in the following stocks: Yahoo (YHOO), Baidu (BIDU), Research in Motion (RIMM), Google (GOOG), and Joy Global (JOYG). This is because all five of these stocks have higher than average returns (assuming they expire above the indicated strike price). A more conservative investor may be interested in choosing the stocks which yield the most downside protection and highest probability of getting assigned at option expiration.

I like using this strategy because even if I'm not called out on the Stock/ETF (at expiration), I'll still have it to write out again at my desired strike price and date again for another premium. Click here to learn more about option strategies like the ones mentioned above, option pricing, and more.

To get an idea of what the Sector ETF's are bringing for premiums I have put together a list of the most popular sector SPDR ETF's below.

As you can see these are even better for a conservative investor, as they have very high downside protection (average of 3.88% among the 9 ETF's analyzed) and a greater than two-thirds chance of expiring in the money at option expiration. However the trade off is that the average return % (assuming the ETF is called out at expiration) is almost 40% lower than the average return for the 20 individual stocks.

For your convenience can view printable spreadsheets of the 20 stocks analyzed in this report ranked in order from least to greatest: Return %, Downside Protection %, and % Probability of expiring in the money, here.

Disclosure: Long GOOG