7 Attractive Puts To Write For 2012

by: Edgar Ambartsoumian

Selling puts is usually favored by investors depending on the circumstances and the financial viability of the said investment. If one truly believes in a company's long term growth prospects, then selling puts could be a way to generate extra income (if one has the capital to buy the actual shares when the option is exercised).

I come across numerous individuals who have Buffett as their investing coach and believe in Bank of America's (NYSE:BAC) valuation of at least $6-$8 a share. My recent poll also showed that investors were divided on the following companies: Research In Motion Ltd. (RIMM), Krispy Kreme Doughnuts (KKD), Dendreon Corp. (NASDAQ:DNDN), Best Buy Co. (NYSE:BBY), Goldman Sachs (NYSE:GS), and Bank of Hawaii Corp. (NYSE:BOH). Following are some attractive puts to boost up your portfolio if you don't mind holding the shares long term.

7 Attractive Puts To Write For 2012

Bank of America Dendreon Krispy Kreme Research In Motion Best Buy Goldman Sachs Bank of Hawaii
Expir./Strike Jan 2012 $6.00 Put Jan 2012 $9.00 Put Feb 2012 $7.50 Put Jan 2012 $15.00 Jan 2012 $24.00 Jan 2012 $90.00 Jan 2012 $45.00
Net Credit Premium $109 $186 $140 $250 $190 $590 $270
Implied Volat. 67.40 55.62 46.00 74.58 41.42 46.89 32.30
Delta -0.79 -0.87 -0.81 -0.71 -0.65 -0.53 -0.72
Gamma 0.29 0.17 0.23 0.12 0.13 0.03 0.08
Theta -0.01 -0.01 -0.01 -0.05 -0.05 -0.25 -0.06
Reserve Capital Needed To Trade $600 $900 $750 $1,500 $2,400 $9,000 $4,500
Open Interest 205,363 7,938 568 27,288 5,232 14,507 525

It's important to state that selling puts is not for everyone and carries a high level of risk. One must know how to manage a trade if the fundamentals of a particular company change and do impact its business significantly. If this event occurs, and your sold put appreciates in value, then it's time to cut your losses and buy to cover before you're obligated to buy 100 shares (assuming you only wrote 1 option contract) of a worthless company that will not recover for years. Sears (NASDAQ:SHLD) would be a great example; company will not show positive earnings for years.

Out of the list, Research In Motion would be the only company that might fit into this category that poses some risk of losing to fierce competition, but its oversold attractive valuation prompted me to include it in the chart for a shorter term bullish play. Netflix (NASDAQ:NFLX) is another stock that I omitted intentionally and have became a bear on after being bullish for quite some time and considering the stock a value.

Disclosure: I am long BAC.