Marco Hickey's  Instablog

With the September options expiration approaching us in just 4 days, I thought I would outline some trade ideas on stocks I wouldn't mind going long (with the exception of AIG), that would return good percentages in just 4 days. When using the buy/write option strategy, it is important that you are willing to hold the security in case it is below the strike price at options expiration. I have put together a list of stocks/ETF's which will return a nice percentage gain if they are above the strike price as of September options expiration, but will also protect (lower cost basis) to the downside in case the stock/ETF sells off slightly and expires below the strike price. The list below is a very tall one, and for your convenience I have ranked the securities in order from the largest % return to the least. To learn more about the buy/write option strategy, risks, pricing, calculations, other strategies, and options in general, click here.

Note that higher beta securities return higher percentages due to their levels of implied volatility, and because they are riskier.

To understand the table, I will give a detailed example of Bank of America (BAC) below.

Sell the Bank of America September 17 strike call option. The premium received from the call option would give a downside protection of 1.82%. If the stock is assigned at options expiration on September 19, 2009 the total return from this position would be 1.88% in 4 trading days.

Company	Ticker	Strike	Potential Return %	Protection %
Citigroup Inc.	C	5	11.50	0.88
Dendreon Corporation	DNDN	28	5.72	3.65
MBIA Inc.	MBI	7	5.64	4.34
American Intl. Group	AIG	41	5.18	5.45
MGM MIRAGE	MGM	12.5	5.11	3.65
SXC Health Solutions	SXCI	45	4.30	0.80
Palm, Inc.	PALM	14	4.04	6.61
Direxion Daily Financial Bull 3X ETF	FAS	80	3.87	3.33
Allied Irish Banks, plc	AIB	7.5	3.81	5.26
AMR Corporation	AMR	7	3.75	2.88
Hartford Financial Services	HIG	26	3.69	2.72
Coventry Health Care, Inc.	CVH	25	3.55	2.82
Teck Resources Limited	TCK	27	3.50	1.88
Yahoo! Inc.	YHOO	16	3.47	0.71
Wynn Resorts, Limited	WYNN	70	3.46	2.24
First Solar, Inc.	FSLR	135	3.28	1.84
Discover Financial Services	DFS	15	3.13	3.33
Agnico-Eagle Mines Limited	AEM	70	3.01	2.16
Allegheny Technologies Incorporated	ATI	34	2.91	2.08
Eastman Kodak Company	EK	6	2.69	7.90
Human Genome Sciences	HGSI	20	2.64	4.89
SL Green Realty Corp.	SLG	40	2.47	2.62
Barclays PLC	BCS	25	2.46	1.81
Las Vegas Sands Corp.	LVS	17.5	2.44	5.54
KB Home	KBH	19	2.42	2.37
BB&T Corporation	BBT	27.5	2.41	1.83
Kinross Gold Corporation	KGC	22	2.36	2.50
Kinross Gold Corporation	KGC	22	2.36	2.50
Amazon.com, Inc.	AMZN	85	2.30	0.94
Genworth Financial, Inc.	GNW	11	2.28	5.71
Goldcorp Inc.	GG	41	2.25	1.84
CME Group Inc.	CME	280	2.17	1.44
Cliffs Natural Resources Inc	CLF	30	2.14	3.45
Chesapeake Energy Corporation	CHK	27	2.07	2.40
Capital One Financial Corp.	COF	38	2.04	2.87
Baidu, Inc.	BIDU	380	2.00	1.87
Goldman Sachs Group, Inc.	GS	180	1.99	0.70
Textron Inc.	TXT	19	1.97	3.37
CSX Corporation	CSX	47	1.95	2.12
Caterpillar Inc.	CAT	49	1.95	1.48
ArcelorMittal	MT	40	1.94	2.61
U.S. Bancorp	USB	22	1.91	1.82
Gold Fields Limited	GFI	14	1.90	3.17
Wells Fargo & Company	WFC	28	1.90	1.61
Bank of America Corporation	BAC	17	1.88	1.82
JPMorgan Chase & Co.	JPM	44	1.85	1.28
Google Inc.	GOOG	480	1.60	0.57
Apple Inc.	AAPL	175	1.58	0.84
Wells Fargo & Company	WFC	28	1.54	1.25
Deere & Company	DE	43	1.36	1.96

To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As a shareholder of Bank of America, Citigroup, and Goldman Sachs shares, I've written them out for a variety of strikes for the September options expiration, as the volatility of the underlying stock gives a very nice premium, even on out of the money options.

These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.

This is an ideal strategy to open long positions when the market has rallied as much as it has. This strategy will give protection if the market sells off, as well as provide a return if the market continues to rally. If the stock is not assigned, this strategy is a great way to create additional income for your portfolio. The reason option volumes have surged in the last 5 years is because they are a great way to hedge your portfolio as well as create income off of your shares (see chart here). Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position.

Disclosure: Long BAC, C, CAT, GS, PALM, Short BAC September 20 Call Options, C September 5 Call Options, PALM September 16 Call Options