Three Options Plays to Help in the “Quest for Yield”
In the quest for yield, options traders often have the advantage: they can sell options and generate income. But with the VIX so low, finding suitable options to sell can be tricky. Brian Stutland of Stutland Equities thinks he's found three names that look attractive for put sales.
Now, when investors sell naked puts, they are willing to buy stock at the put option's strike price in exchange for collecting the price of the option. “When you’re looking at selling a put, you should be comfortable owning the stock and there should be some support behind,” says Stutland.
The three names Brian is looking at?
Vale, Microsoft and Suncor.
Specifically on Vale , Brian is looking at selling the February '11 33-strike put for $1.80. That $1.80 works out to a 5.4% return over the next three months, and worst case scenario, you may have to own one of the world largest miners. But with the money you received from the put sale, you effectively get long the stock at a 6% discount.
Another name Stutland likes is Suncor, a large-cap Canadian-based energy company. The March '11 34-strike put currently fetch about $1.75, good for a 5.2% yield over the next three months.
The last name is probably a bit more familiar: Microsoft . The tech giant sits on over $40 billion in cash and sports a nice dividend. But the options look even better to Stutland. Specifically, he's looking at March '11 26-strike put about $1.00. That buck represents a 3.8% return over the next three months.