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About The Company
Market Capitalization $8.8B
Revenue (FYR) $5.0B
Total Debt $3.14B
EPS $3.65
P/E Ratio 17.5x
Shares Outstanding 139.4 M
Avg. Daily Share Volume (Last 10 Days) 1.8 M
Dividend: $2.20
Book Value: $2.00
P/Cash Flow: 12.6X
Operating Margin: 15.20%

Clorox Co is a profitable Personal & Household Prods. company that trades on the NYSE. I am sure you will recognize the products from this company - Brita, Armor All, STP, Glad, Burt's Bees, Hidden Valley, KC Masterpiece, Kingsford charcoal, Green Works, and of course Clorox Bleach, among many others.

The Company sells its products primarily through mass merchandisers, grocery stores and other retail outlets. It primarily sells these products in North America, while having a smaller presence outside our continent. It is working to grow its brands beyond our borders and has increased its revenue and its dividend each year. This is a large consumer products corporation with an attractive dividend.

Over the next few years Clorox believes it will grow its revenue between 3 to 5 percent annually. This could be higher if its brands become more common place outside North America. Presently they have 10 number one brands out of the top 16 consumer brands. Clorox is very strong when it comes to its brand names and that could be the key to my success as well.

The biggest problem Clorox faces is that many of its brands are related to the commodities which they are derived from. This has meant an increase in actual cost to produce by about 600 million dollars annually. The company believes this cost will decrease by about 100 million annually starting in 2010 going forward. They have managed to increase the cost of their products aside from Glad, by close to 50% and the consumer has not balked at these price increases. This bodes well for Clorox brands.

Their profit margin is around 9.85% which is reasonable for a consumer products company. Their debt is 3.15 billion and declining gradually. Return on assets is again good at 13.96% but book value is poor at $2.00 per share outstanding. The chart below shows that the price for the stock however remains range bound, which is okay for my strategy as I want low volatility in the stock in order to have some degree of comfort for both my puts and calls.  



Of Use
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not access or use this site.
Nothing presented is financial advice, trading advice or recommendations. Everything presented is the author's ideas only. The author accepts no liability for its use including errors and omissions. You alone are solely responsible for your own investing and trading. There are considerable risks involved in implementing any investment strategies and losses can be large. Trade at your own risk.

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  CLOROX  (CLX) - 2010
Clorox Stock Symbol - CLX
Strategy: Selling Naked Puts Until Assigned

This will be a core holding. Options are thinly traded and premiums are reasonable but not terrific. However my strategy with this stock is selling naked puts at the money and in the money to follow the stock movements. The stock has an excellent trading range and is widely held by institutions. The current strategy is selling naked puts until I either accept assignment OR get assigned shares. Then I will turn to covered calls and collect the dividend. Should the stock fall too low  making covered call selling impractical I will add to my stock position through selling naked puts to lower my overall cost.



Should you find my strategy and ongoing evaluation of this trade of value I hope you will consider a tip for the time I spend detailing out this trade. I have set up a Paypal account for those who would like to donate. Thank you in advance. Remember, nothing on my site is financial advice. They are just my ideas and opinions. Investing is risky and losses can be large. Trade at your own risk. Read the terms of use



YEAR 1: 2009 - Trade Commenced March 2009
Goal for 2009: 10% (10 months)
Strategy: Sell Naked Puts Until Assigned
Capital In Use At End Of 2009 32,500.00
Income Earned in 2009 (10 months) 5740.00
Return On Capital in 2009 (10 months) 17.66%
YEAR 2: 2010
Goal for 2010: 12%
Strategy: Sell Naked Puts Until Assigned
Capital In Use At End Of 2010 78,000.00
Income Earned in 2010 9245.75
Return On Capital For 2010 11.85%


Feb 4 10 60.38 BTC 4 NP FEB 60 @ .60 (1.0)     12.00     (252.00) 5488.00
Feb 4 10 60.38 STO 4 NP MAR 60 @ 1.35 2.2     12.00     528.00 6016.00
Mar 8 10 61.57 STO 4 NP Apr 65 @ 3.70
COMMENTS: I am not moving to the $65.00 put to sell as I believe the stock is working its way towards that point. See my full comments, strategy and chart below as per Mar 8 2010. I will close the Mar 60 puts shortly when the premium reaches .05 cents.
5.6     12.00     1468.00 7484.00

Mar 8 2010:
First, I must refer back to the Nov 6 2009 trade update below. At that time the goal was to sell the $60 puts for premium as the stock works its way higher to meet me at $60.00.

Hypothetically let's see how two trades could have worked out.
On June 19 I was assigned shares at $60.00. In our example then, let us say that on June 19 I had purchased 400 shares at 55.00 and sold them in December at $60.00.

Total  $2000.00

I would have picked up the Jul and October Dividends for a total of $1.00 X 400 shares = $552.75

Option Income from selling covered calls - If I had sold 4 contracts $60.00 CC from Jun to December when assigned, based on the covered calls I did sell during this period I would have earned $1280.00 in call premiums

Total income would have been $3680.00 / 22,000 = 16.7% - not bad for 7 months.

During the same period if I had sold the $60.00 puts I would have earned:

June 19 2009 Stock at $56.07 - 4 July $60.00 puts @ 4.22 = 1680.00

July 17 2009 Stock at $58.07 - 4 Aug $60.00 puts @ 2.26 = 904.00

Aug 21 2009 Stock at $58.69 - 4 Sep $60.00 puts @ 1.59 = 636.00

Sep 18 2009 Stock at $57.93 - 4 Oct $60.00 puts @ 2.36 = 944.00

Oct 16 2009 Stock at $58.17 - 4 Nov $60.00 puts @ 2.15 = 860.00

Nov 20 2009 Stock at $59.65 - 4 Dec $60.00 puts @ .55 =   220.00

Dec 18 2009 Stock at $61.40 - Dec puts expired


Total income $5244.00 / $24,000 (400 X $60 strike) = 21.85% AND no shares ever assigned. 


Either trade would have been beneficial, however writing the $60.00 put would have improved our return by 5.15%. Meanwhile my $24,000 was in a high yield daily interest savings earnings 1% annual or .60 cents per day X 252 days (approx) = $151.20 additional income.


The second part of the Nov 6 2009 goal was to sell a smaller number of puts out of the money in order to generate some additional income, while at the same time protecting the stock a little bit should we fall back. If that occurred and I had to accept assignment at $60.00, the $55 puts would naturally increase in premium value. If I had been assigned at $60.00 and then the stock fell through $55.00, the objective then would have been to try to roll the $55 puts monthly until there was no further premiums and then consider accepting assignment at $55.00. Things though have changed a bit, and all in my favor. I have now generated $6000 in cash. Enough to buy 100 shares of clorox at 60.00 if I wanted, which I don't. The stock touched 62 back in December, pulled back to 59 and now is back to resistance at 62.00. I intend now to move to the $65.00 puts and sell at that level until, A) I am assigned or B) The stock moves beyond 65 in which case I will then sell the $70.00 put or C) Until the stock falls so low that there is no premium left at $65.00. I am therefore going to follow the same actions I took in Nov. Back then with the stock trading around $58.00, I moved to ITM and commenced selling the $60.00 put. This generated excellent returns and basically the stock has now built a base around the $60.00 level. Unless strong selling comes into the market, I believe Clorox is heading to $65.00.  I believe it took Clorox about 5 months to build a base at $60.00 and I think it may take into the summer to build a base at $65.00. Meanwhile by selling the $65.00 put, I am taking advantage of the possible rise in the stock by gathering premium every month, while the stock works its way to meeting me at $65.00. I have now sold 2 long puts at the 55 level out to Jan 2011. We shall see if my outlook unfolds as I hope.

Mar 9 10 61.88 BTC 2 NP Apr 55 @ .05 (0.09)     9.50     (19.50) 7464.50
Mar 9 10 61.88 STO 2 NP Jan 2011 $55 @ 2.05 3.7     9.50     390.50 7855.00
Mar 12 10 62.80 BTC 4 NP Mar 60 @ .05 (0.08)     12.00     (32.00) 7823.00
Apr 16 10 64.49 Expiry: Bought To Close 4 NP Apr 65 @ .50 (0.76)     12.00     (212.00) 7611.00
Apr 16 10 64.49 Bought to close 2 NP Jan 2011 $55 @ 1.35
Comments: As just a little over 1 month has past since I sold this on Mar 9 and the return has been excellent for 1 month. I have elected to close this and move to July 65 for these 2 naked puts. Should premium disappear from the July 65 puts, I will close these early.
(2.4)     9.50     (279.50) 7331.50
Apr 16 10 64.49 STO 3 Naked Puts May 65 @ 1.90
COMMENTS: Read the change in strategy, below to understand the steps I have taken to continue trading in this stock.
This commits $19,500 and leaves $26,000 for further naked put writing.
2.8     10.75     559.25 7890.75

April 16 2010: UPDATE: WHAT TO DO WHEN I BELIEVE MY STOCK IS FULLY VALUED? With Clorox pushing the 65 level what would be the best course of action with my naked puts? In the above chart I can see that in the past 6 months the stock has not been below $57.84 which was back on Oct 21 2009. That is 7.16 from $65.00 or 10.70% lower. I rolled from my April 65 puts to May 65 puts. At $65 though I feel the stock is possibly fully valued and should it push higher it may be stretching into overvalued territory. So how would I continue trading Clorox? I think it is a strong company with a safe trading range. I want to take advantage of that trading range, but I want to be able to optimize the income I can earn against the capital I have committed. How should I do that, now that the stock has climbed to these lofty levels?

For some clues as to how I can continue with Clorox, I normally look back 5 years which is in the chart BELOW. Here I can see that $65.00 is getting toward the top end. Unless earnings can dramatically increase, this stock is going to have a hard time moving a lot higher. I have marked in red the $65.00 region as well as the $57.84. I can see that at $57.84 the stock has been reasonably valued. Probably anywhere between $65 and $57.84 would be a good area to trade, but premiums are poor beyond the ATM and ITM strikes. To understand my strategy on stocks I consider fully valued, please read the summary directly below the 5 year chart.

SUMMARY: It is obvious what I need to do at this point. I have committed $45,500 of capital to this stock. These are steps I will now take:

1) Usually I bring up a list of the last trading days since the previous expiration. The chart below shows the period Mar 22 2010 to April 16 2010. I have underlined the low points for those 20 trading days. There were 6 days when the stock pulled back to below 63.30. That means roughly 30% of the past 20 days were periods when I could have sold puts for better premiums on either the $65 strike or the $60 strike.

2) Those will become my points of interest. I set my trading program to alert me whenever Clorox falls to 63.50 to allow me enough time to get to my computer and review put values.Meanwhile I will buy back the Jan 55 puts to release all my capital for naked put writing.

3) I want to be able to write a total of 7 naked puts each month if possible. I realize that I will not always be able to judge the best time to sell the put so to augment my income and insure I am generating some revenue every month I will sell 3 Naked Puts at the money immediately and roll them each month at expiration. The rest of my capital I will commit each time the stock pulls back below 63.50. Remember that I have confidence in this stock. Every time it falls in value to my stock levels ($63.30 and lower) I will sell the additional puts. If I am wrong and the stock continues to fall, I take comfort knowing that I am short puts on a great company. If I did not have this confidence, every time the stock falls I would be waiting, wondering if the stock this time is actually going to fall further. All the while possibly missing the opportunity to sell on any weakness. This is not the way to sell naked puts in my strategy. I know the share prices I will be waiting for - when the stock falls to it then I sell the naked puts.


May 3 10 64.79 BTC 3 Naked Puts May 65 @ 1.00 (1.5)     10.75     (310.75) 7580.00
May 6 10 62.80 STO 3 Naked Puts Jun 65 @ 3.00 4.6     10.75     889.25 8469.25
Jun 2 10 62.80 STO 5 Naked Puts Jun 60 @ .30 0.50     13.25     136.75 8606.00
Jun 3 10 64.07 BTC 3 Naked Puts Jun 65 @ 1.37
COMMENTS: With today's rise the market has just touched the 200 day moving average but can it cross it convincingly? Whatever happens I will sell July 65 Puts tomorrow depending on the job numbers.
(2.1)     10.75     (421.75) 8184.25
Jun 4 10 62.90 STO 3 Naked Puts Jul 65 @ 2.90
COMMENTS: With today's sell off I can double my return by selling out to July at the same strike. If the market breaks and falls further, all stocks will pullback. I will buy and sell this strike for some time or until there is no premiums available. Buying on up days and selling on down days will continue to garner income.
4.4     10.75     859.25 9043.50
Jun 18 10 65.07 Expiry: 5 Naked Puts Jun 60 expired
See my comments for Jun 18 2010 below.
June 18 2010: With June options expiry the stock is back to 65.00. During the past month the stock fell about 5% allowing me to sell Jun 60 puts for additional income, while continuing to roll my $65 naked puts, month to month. At this rate I should be able to attain my goal of $4500.00 of income for 2010. This stock has been an incredible performer and trades in a tight range. Meanwhile I have generated $9043.00 to Jun 18 which reduces my stock cost to $34.86, a price point Clorox has not seen in a great many years. The goal here is to continue garnering income and the objective is to sell naked puts until something occurs hat forces me to take assignment on the shares. You can see that the strategy of "Walk The Profit Home To Mama" is paying off handsomely, as the stock continually walks itself up to the $65.00 price and then pulls back, allowing me to sell naked puts at the two different strikes: namely $60 and $65.


Jun 21 10 64.88 STO 3 Naked Puts Aug 65 @ 1.95
Comments: In any pullback I will sell the Aug 60 naked puts. I sold 3 Aug 65 puts as I expect the Jul 65 puts will lose more value as we approach July expiration.
3.0     10.75     585.00 9628.50
Jun 29 10 62.78 STO 2 Naked Puts Jan 65 @ 5.20
Comments: Clorox remains very strong despite the market downturn. I am continuing to hope for a summer rally that will keep this stock hovering around the 64 to 65 dollar range.
8.0     9.50     1030.50 10659.00
Jul 6 10 61.78 STO 5 Naked Puts August 60 @ .87 -
Comments: With today's move lower I took advantage of the premiums to sell the August 60 puts.
1.4     13.25     421.75 11080.75
Jul 6 10 61.78 STO 2 Naked Puts Jul 65 @ 3.40
Comments: This is a great spot to sell another 2 naked puts for Jul 65. If I am wrong and CLX moves lower, then I have 5 naked puts for Jul 65 that I can roll out to Aug or split them between Sep and Oct. If though the stock moves up, then I will close these puts. This fits perfectly with my strategy of "Walk That Profit Home To Mama" which you can read by selecting the link above and scrolling to the bottom of the page under the heading "Walk That Profit Home To Mama". I am confident that this is the 3rd trading range for this stock and 65 should be the high for this trading range for possible another short while. I am unsure if we can move higher from here, but I think 60.00 is probably the low for a while in this trading range.
5.2     9.50     670.50 11751.25
July 13 2010: Look at the chart on Clorox. Since last July this stock has been the perfect candidate for the "Walk That Profit Home To Mama" strategy. If you haven't read it, click here.
This stock has had 3 moves higher, to date. I have labelled them 1,2 and 3. By picking the high and low range of the trade I can try to sell the high strike naked put when the stock is falling and then buy it back each time it hopefully rises and roll to the next month. By doing small lots of contracts such as 2 or 3, it allows me more opportunity to have some possibly expire and possibly catch the stock on another move lower. Meanwhile I can also sell naked puts in lots of 5 contracts at or just below the lower range strike put. For example in section 3 of the chart below, I have been selling the $65 naked put which is at the high strike and trying to sell the $60.00 naked put on the bottom or low of the range.
Could there be another move higher coming shortly? This has been the case throughout this trade, however it is going to take strong earnings and I think an overall higher move in the overall market, to reach a higher range. Today the stock again reached the $65 dollar level. July options expire this Friday and it will be interesting to see if the stock can hold around the 65 level. This time though, if the stock does hold, I will be rolling these 65 naked puts, two months out, into September as I have naked puts already sold for August. I will start over by selling small put contracts or 1 or 2 and working my way up to 5 or 6 at the $65 strike. You can see the strategy at work by looking at the chart below and then following the trades as I executed them above.
So how well does the strategy perform? Let's take a look.
Since March 2009 the stock has moved from around $50.00 to $65.00. - a gain of $15.00 or 30%. If I had bought 600 shares @ 50 I would have tied up $30,000 in capital and I would have returned $9000.00 + $1476.00 in dividends = $10476.00
With my strategy I have returned 11751.25 - and used a wide range of capital from $15,000 to the present high of $95,000. Much of this though has been margin and much of it has been for very short trades of a week or two. On average I have been using the same amount of capital - $30,000.
The returns are very comparable, but I have a very long range outlook on Clorox and I could be trading at this range for many more months. The strategy I employ though has captured the same return as holding the stock but I believe with less risk involved and more flexibility. There are though distinct advantages of just having held the stock which includes less commissions, gaining the dividend (although as I am in Canada the dividend would be taxed as straight income), less time consuming as there would be no real need to follow the stock if I was a long term investor in this company and finally my overall break even in the stock would be considerably lower.
Through selling the naked puts throughout this trade my one big advantage has been that I have actually captured the profit throughout the trade and locked it in. The buy and hold investor still has the profit "on paper" only and will not realize it until he cashes the stock out. I on the other hand am holding $11,751.25 in cash taken since March 2009 for this trade. At any stage I could pay the cost to close this trade and either leave the stock with my original capital still in tact or move that capital into shares of the stock and just earn the dividend, which being an option trader means selling covered calls. This really shows an investor the importance of stock selection and watching the chart for ranges in order to select proper strike prices and watch for the stock to rise and fall.

Jul 15 10 65.00 BTC 5 Naked Puts JUL 65 @ .25 (0.38)     13.25     (138.25) 11613.00
Aug 16 10 64.30 STO 5 Naked Puts Sep 60 @ .25 .41     13.25     111.75 11724.75
Aug 20 10 64.45 Expiry: BTC 3 Naked Puts Aug 65 @ .63 (0.90)     10.75     (199.75) 11525.00
Aug 20 10 64.40 Expiry: STO 3 Naked Puts Sep 65 @ 1.45 2.2     10.75     424.25 11949.25
Aug 20 10 64.42 Expiry: 5 Naked Puts Aug 60 expired                
Sep 10 10 65.85 STO 4 Naked Puts JAN 55 @  .60
Comments: Read my comments below under Ongoing Evaluation Of Clorox Company, for September 10
1.09     12.00     228.00 12177.25
Sep 10 2010: Clorox continues to remain strong as earnings and growth continue to make this stock an excellent choice for my strategy. As well I believe Clorox could be a good takeover candidate for the larger companies in this same field as Clorox market cap is just 9.6 Billion, while companies such as Procter and Gamble have a market cap of 171 billion.
I am confident the September 60 naked puts will expire worthless. With the stock remaining strong I will now adjust my positions. I will increase the number of $65 strike puts to 4 from 3 and decrease the number of puts being sold at a lower strike from 5 to 4 contracts. The October 60 puts will only bring in .15 cents which would work out to .60 cents by January. Therefore I looked at January and the $55 put strike is trading at .60 cents. I sold 4 naked puts for JAN $55 at .60. Next Friday when options expire I will sell 4 put contracts for Oct 65. I have already reached my goal of $4500.00 annual income some time ago. Now I am just padding my Clorox trade with more earned income as I prepare for next year (2011) when I believe the stock will either trade between 65 and 70 or will continue to trade between 60 and 65.
Sep 17 10 66.91 STO 2 Naked Puts Oct 65 @ .40
Comments: Today is options expiry. I am sure my Sept 65 will expire but sadly the premiums are falling for the 65. However I am content to stay at 65 for the time being. I want to see some strength for a while above $65 in the stock before moving higher. I am splitting up my 4 puts between October and I will sell the other 2 out to April.
0.61     9.50     70.50 12318.25
Sep 17 10 66.70 STO 2 Naked Puts April 65 @ 3.20 4.9     9.50     630.50 12948.75
Sep 17 10 66.65 Expiry 3 Naked Puts Sep 65 expired and 5 Naked Puts Sep 60 expired                
Sep 23 10 65.90 BTC 2 Naked Puts Oct 65 @ .51
Comments: With the fall lower this morning, it made a lot of sense to take advantage of the premium and move to November. It's simple math. I lost .11 cents rolling from Oct to Nov 65. I made 1.47 on the roll which is .735 per month - almost double my original sell of .40 cents for the put.
(0.78)     9.50     (111.50) 12837.25
Sep 23 10 65.90 STO 2 Naked Puts Nov 65 @ 1.58 2.4     9.50     306.50 13143.75
Oct 13 10 68.70 BTC 4 Naked Puts Jan 55 @ .15
COMMENTS: This is a roll up from 55 to 65
(0.27)     12.00     (72.00) 13071.75
Oct 15 10 67.95 STO 4 Naked Puts Jan 65 @ 1.40 2.1     12.00     548.00 13619.75
Oct 15 2010: THE ROLL UP: If you recall the stock chart from July 13 (below) you recall how Clorox has set a variety of trading ranges. The stock has not broke out of that range and moved higher. So the concern now is waiting for the new range to develop, IF it does develop. Often a stock breaks out only to find there is no support at higher prices and it pulls back to support. When selling naked puts, the secret is to wait for that range to develop. As such I have rolled up from Jan 55 to Jan 65 which right now, is the upper end of the range I am willing to selling naked puts for. By rolling up in the same month (Jan), I can reap more income and keep the roll further out, available in case the stock slips back OR should the stock establish a new range and let me move higher with my strikes. It's worth the weight, but do you notice how I am no longer selling in the money puts. That is because if you look back at the chart for Clorox, we are moving into new high territory which is untested as the stock has NEVER been this high in its history. So could Clorox be a takeover target and we are just not being told? Why the big move higher, particularly in a market where earnings are good, but not spectacular? What is driving the stock higher? Dare I say a possible takeover?



Oct 27 10 65.95 STO 4 Naked Puts Dec 65 @ 1.10 1.6     12.00     428.00 14047.75
NOV 3 2010: The earnings news did not meet expectations and the stock fell 5%. Now what? I have sold all my naked puts spread out over a variety of months, but all at the $65.00 strike. Should I worry and close some puts? Well let's look at the stock. In 2009 when the stock recovered from the selloff of 08-09, the stock ran up to $62.50. Throughout 2010 the stock has moved back and forth but $62.50 for most of the year has been in the low point. There appears to be quite a lot of support at $62.50. When the stock moved above $65.00 I rolled up to $65.00, but for most of the year, I kept selling my $65.00 strike naked puts waiting for the stock to "walk" home to my strike. It did and walked right past. But looking at the chart I can see that the $65.00 strike was the top range for quite some time until it finally broke out. But the earnings didn't support the breakout. It is important to remember that since September the market itself has moved higher, and during such an uptrend investors will pick quality names that appear strong and buy into them, moving the price higher. With naked puts, I can pick my strikes and refuse to get caught up in the buying frenzy. Clorox is a strong company and remained in an uptrend for much of 2010. It was an obvious choice for investors to jump into in September pushing it from 65 to 69 in short order, a quick 6% run up.

I have a lot of confidence in my stock picks. Clorox is one such company. I have been through this many times before so I have my strategy already mapped out. First with the stock fallen below $65.00, this is an opportunity to try to capture additional premium by rolling forward. Today I rolled my Nov $65 puts into Jan $65. I will roll my December $65 strikes further out as December expiry arrives. The stock has a lot of support at $62.50. So any move lower than $62.50 will meet with resistance Looking at the chart I believe should the stock fall below $62.50, it may bottom around $59.00 to $60.00. I am confident looking at the chart that Clorox will maintain it's range with $65.00 being near the top end. The advantage of selling further out, is obvious.
By rolling my 2 Nov puts into Jan, this gives me 6 Jan 65 puts. This will make my strategy of reducing the number of put contracts in the money easier with each roll. It is difficult to roll just 2 naked puts and reduce it by 1 contract on a roll, without taking a net debit. However rolling from 6 contracts to 5 and then from 5 to 4 and so on, is a lot easier.
However since my contracts were spread out from November to April, and all at 65, it would be best to work toward getting them together into a larger group and then reduce the contracts in each group with each roll further out in time.
Meanwhile by continuing to roll I will gain more capital effectively reducing my eventual price on the stock while reducing the number of put contracts at risk. Meanwhile Clorox is paying a $2.20 annual dividend. If I end up being assigned at the $65 level, my break even of $53.14 translates into a 4% dividend yield. It is obvious why continuing to bring in more premium while reducing the number of put contracts at risk, is a great strategy. I am earning money, my base capital remains intact but still not actually invested in the stock and each roll reduces the number of contracts and frees up capital to be invested at a lower strike.
For many investors, when their stock pulls back and puts them in the money, they panic. Far too many just close and take the loss and get out. I suppose that is a strategy, but I have picked stocks I like. I have a lot of confidence in my stocks. Therefore a pullback like this one, is an opportunity to grab additional premium and just like my Microsoft or Intel positions, slowly reduce the number of put contracts that are at risk, each time I roll further out.
Does this strategy work? I have been doing this for many years on a variety of stocks and as long as it is a quality company, I have enjoyed good returns and when finally assigned, my cost basis is very low.
Take a moment out and look at the Microsoft trades and the Intel trades, two other positions caught in the money. My Microsoft 26 puts were in the money for a while, but the stock has recovered and now the 26 strikes are out of the money. Meanwhile I have been reducing the number of contracts at 29. Who knows, perhaps with the new gaming add on for the X-Box, Microsoft will recover beyond my 29 strike. Meanwhile I keep my strategy focused and continue to bring in premium.

One thing I would mention though is how right up until last week, there were no sell calls by analysts on Clorox. With the stock over $68.00 they continued to rate Clorox a buy. Now, they are rating it a hold. A few are neutral. Notice how very few ever say "sell". This is why years ago I turned to options to protect my trades and studied my own stocks and their charts.

Nov 3 10 62.99 BTC 2 Naked Puts Nov 65 @ 2.10 (3.5)     9.50     (429.50) 13618.25
Nov 3 10 62.99 STO 2 Naked Puts Jan 65 @ 3.10 4.7     9.50     610.50 14228.75
Update Nov 6 2009:
I had shorted the Nov 60 puts with an eye to being assigned and to capture some of the enormous premium of these ITM puts, back on October 13. The stock itself has been on a rise due to the H1N1 concerns. My $3.13 puts for Nov are now trading at 1.05 to 1.20. I will be keeping an eye on the puts this week. If the stock can hold here or move higher, the premiums will quickly evaporate. I plan to roll these puts to the Dec 60 strike.
As well I am holding the Nov 55 puts which is designed to generate smaller regular incomes to augment my overall position.  I will roll these to Jan 55. This is the beauty of naked puts. While you may find yourself caught ITM at times and worried about being assigned, always remember that the timing of when to be assigned is your choice. Just like a covered call, you can buy the put back and roll out or roll out and down. Checking the technicals on a stock are important guidelines. You can quickly see that the 80 day support for this stock is at 56.89. My second set of naked puts is sitting 3.3% below that at 55.00. If I average just .50 cents six times a year on this second set of naked puts, it means an additional 3.00 of income annually. Meanwhile if I can continue to sell naked puts at the 60.00 strike level and keep rolling them monthly when necessary, it too will generate additional income. My goal here is to try to generate an extra .50 monthly from the ATM puts, while the stock drifts in and out of assignment at the 58.00 to 60.00 range, which is what I am planning for. This means an additional 6.00 in income from that position. My monthly goal was to average .75 cents per month. As this is my goal, it makes it easy to know when to buy back the puts and roll them. If I attain the .75 for the month, I know it is time to start planning on the buy back and roll out. If I have averaged more than .75 monthly, this affords me even more choices as to when to buy back and continue rolling my positions and take advantage of volatility and possible option premium increases. 

Therefore at the end of the 12 month period (Sep 2010)  I hope to have generated 9.00 X 600 shares = $5400.00 in income and tied up $34,500 of capital. My capital meanwhile is invested in a daily interest high savings account earning .75% annually. At the end of the 12 month period, I will have made about 16% return on a slow moving stock with thinly traded options. As well it means that when I decide to take assignment I will be in the stock significantly lower than today’s prices. While I would like Clorox to be a core holding for me, it does not mean I need to buy the stock right away. I could consider being assigned months or even years in the future, or to never be assigned at all.  

This is the reason why so many option traders short ITM or ATM puts on stocks such as CLOROX. They are not concerned about being assigned but are trying to generate income off the stock by staying ITM or ATM as much as possible. One further advantage of the naked put over the covered call on dividend paying stocks is that, when the stock reaches dividend time, it is important to calculate your valuation on the call side. If the dividend is larger than your call premium, your risk of early exercise rises dramatically. With a naked put this is not the case as by assigning shares to you prior to X-Dividend, you would naturally be receiving the dividend. I have never been assigned early on a naked put due to dividend payouts. In some ways I feel Naked Puts offer more flexibility than covered calls. So remember that it is your choice when to be assigned on naked puts that are ITM.

Dec 17 10 62.51 BTC 4 Naked Puts Dec 65 @ 2.55 3.9     12.00     (1032.00) 13196.75
DEC 17 2010: With today's options expiry the strategy I put in place is continuing to perform. I rolled 4 Dec 65 naked puts from Dec out to 3 naked puts to April 65. This has reduced my exposure by 100 shares and continues to create more income. I will continue with this plan into Jan and reduce the number of contracts further and then commence selling naked puts at lower strikes, while waiting to see if Clorox can recover.
Dec 17 10 62.51 STO 3 Naked Puts Apr 65 @ 4.40 6.7     12.00     1308.00 14504.75
Dec 29 10 64.00 BTC 6 Naked Puts Jan 65 @ 1.80 1.5     14.50     (1094.50) 13410.25
Dec 29 10 63.85 STO 6 Naked Puts Feb 65 @ 2.65 4.0     14.50     1575.50 14985.75
END OF 2010: EARNINGS - $9245.75   11.85%



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