Put option trade on Boeing

This morning I opened an option trade on Boeing (BA). I sold-to-open a put with a strike price of 115 and an expiration date of January 20, 2017.

What this means is that should BA be at or below 115 between now and January 20, 2017, I may be assigned to buy 100 shares at $115 per share. BA is currently trading near 120, which is just $5 higher than its 52-week low.

I received $1,169.97 in premium for selling this put and the money was deposited immediately into my account.

If BA stays above 115 by next January, I’d get to keep the entire premium and have made a 10.17% return (since $11,500 is held as a cash-reserve). If BA drops below 115 then I get to keep the premium but then am forced to buy 100 shares at 115. However, since I collected the premium, my break even point is actually 103.3.

If BA were theoretically to drop to 105, I’d still have come out ahead and then would own BA at a great entry point and begin collecting a dividend that is currently up to 3.7%.

This coming year I hope to use this kind of a strategy more often to supplement the dividend income. With the single option trade above I’m higher than the total option income generated in 2015!

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16 Responses

  1. DivHut says:

    I look forward to reading more of your options trades. Something I definitely want to feel more comfortable before I try. I see that most go the covered call route or selling puts as you have done. I’m guessing your premium is that high because of the time element involved in your trade. Usually I read about options trades with an expiration of a few weeks or few months tops. Curious to see how this trade works out or any other options trades you get into. Thanks for sharing.
    DivHut recently posted…February 2016 Stock ConsiderationsMy Profile

    • scott says:

      Hi DivHut,

      I’d recommend checking out one of the free paper trading accounts on my Paper Trading resources page. It’s a great way to practice various strategies but not risk real money. That actually is one of the problems, you aren’t as emotionally invested with the paper trading accounts.

      Yes, the premium is high because of the long expiration and because I sold it near the current stock price. Many people that sell puts do so 1 or 2 standard deviations out so that the chance of being assigned the shares is less. In the case for BA, I wouldn’t mind owning them at the current price and think 115 would be even better. The beauty of options is that I can get paid to wait for the price that I want to buy it at.

      Looking forward to reading about your foray into options trades! 🙂

  2. ambertree says:

    Thx for sharing this trade. For now i use short term puts between 30-45 days. These long term puts when the stock is low look like a great way to enter the market.

    • scott says:

      Hi Ambertree,
      I mostly do 30-45 day puts as well since, as you know, theta decay effects are substantial then. This allows me to buy back the put to collect the premium and then recycle the process.

      This is a slightly different strategy that I actually saw on Seeking Alpha and really liked.

  3. Hey Scott,

    I sold a BA put also recently, but went with a very short expiration, I’m definitely interested to see how this works out for you. It’s a long time frame, but since you want to own it, you grabbed a lot of capital you can put to work immediately elsewhere. The thing I always find interesting when I’m selling is to look at it from the buyers point of view, that there are people out there right now who own BA and are willing to pay about $100/mo to have downside protection from losing $11,500

    I wanted to ask you – did you have any luck finding a formula or way to pull earnings dates into google sheets?

    Devin
    DividendChimp recently posted…Transition to OptionsMy Profile

    • scott says:

      Hey Devin,

      Interesting way to look at it $100/month of insurance going into my pocket. Pretty cool! Thanks for sharing that. I’ll be interested in seeing how your short expiration put turns out too. I usually do 30-45 day expirations so this is new to me as well!

      Sorry. I haven’t been working on pulling the earnings dates yet into Google Sheets. I don’t think it should be too hard though. I’ll try to get something for you soon!

      Scott

  4. Ivan Jordon says:

    If only investing is as easy as placing bets on soccer games. lol
    Ivan Jordon recently posted…Strategy Make More Money Using ANY Equalizer365 Strategy!My Profile

    • scott says:

      Thanks for visiting, Ivan. I have to partly disagree with you. I actually thinking investing is MUCH easier than winning and making money on bets on soccer games. Maybe the process of making bets on soccer games isn’t that hard, though the online brokerage firms are very easy to use now.

      Scott

  5. David Dixon says:

    I’d say that is a good play. 10% is 10%; nothing wrong with that. And if the put gets exercised, you own a piece of a pretty good company. Well done.

    • scott says:

      Thanks, David! Almost seems too good to be true, right?! I like DividendChimp’s analogy above: it’s like I’m collecting insurance premium on the order of $100/month from someone willing to sell BA to me at $115. Once I get some cash freed up, I’m going to add BA at whatever price they are at now (a little over $121 at the moment), so the possibility of getting paid to own it at $115 sounds great!

      Scott

  6. easydividend says:

    hi Scott,

    Very Good Trade! I also started to make some experience with two simmilar trades.
    In Jannuary i sold a Put on Caterpillar, and a Put on Wells Fargo. Expiration Date is Jannuary 2017.
    I also got a Premium of 1224 Dollars. that makes a annual yield of 11,1% for the 11.000 Dollars i have to pay, when the price is under my strike.

    best regards
    easydividend

    • scott says:

      Great trades! They both should work out well for you. I’m really liking financials right now and will likely go long on a few different ones. Looking forward to following your blog. Your English is much better than my German, btw!

      Scott

  7. I bet you were nervous last week when the stock tanked on SEC investigation news. I like BA in the long run, and I think you will get to keep this premium. Nice trade.
    Investment Hunting recently posted…Buying More IBM StockMy Profile

    • scott says:

      I was a little nervous because it got so far in the money. But, I’m still happy with that entry point even if it does eventually get called. I was actually more upset that I didn’t have more money available to go long on it when it dropped to that terrific price!

      Thanks for commenting!

  8. Chris Imming says:

    Of course you aren’t stuck should the BA price move below $115. As you monitor the price of the stock versus your strike you can always look to roll the trade using the same strike out beyond Jan 2017 or close it completely by buying back the put maybe for a loss (but a smaller loss than owning the stock). When you roll you have the option to modify to a future expiration and or a different strike too.

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