In my Bank of Montreal stock trade alert yesterday I discussed my BMO trade and how I would be adding another 5 naked puts at the June $74 strike. I entered that trade today. I also however bought 500 shares of BMO stock at $74.51 and next week I will sell the June 21 or July 19 slightly in the money $74 covered calls against those 500 shares.
BMO Stock 6 month chart
If you recall the article from yesterday which you can read through this link, the 6 month chart below shows the that two support levels are in play at the present time. After today I have 10 naked puts at the $74 strike for June expiration and 500 shares at $74.51 bought today.
There is no stop-loss in use as I am not worried about the stock falling as I would tuck it away for a long time if I was forced to. If by chance the stock should fall back to around the $68.00 level as it did in the most recent downturn I will sell the in the money $70 put strike or possibly the $72.50 put strike. Any downturn in stocks that is severe enough might be able to push BMO Stock back to the lows of early February when it traded around the $67.50 level. However based on the revenue and earnings numbers I think the stock is undervalued below $70 and would recover easily from any such downturn. By selling the money naked puts at $72.50 and – or $70 in the event of a decline to or below $68 I will earn a very good put premium and wait for the stock to recover.
BMO Stock 6 months to May 15 2014
That is the plan going into the summer months for BMO Stock and the 10 naked puts I now hold. Remember that in the summer I plan to protect capital as much as possible as I believe we will see a correction in the summer months. If I am wrong and there is no correction I am still earning excellent returns with BMO stock. But like all trades I like to have my plan in place as to what I would do in the event certain events happen.
Stock Purchased Today
The stock bought today will be placed in my TFSA and I will sell the slightly in the money covered calls on Tuesday (Monday being a holiday) or Wednesday. I plan to let the stock be exercised if BMO stays above $74 by the time either June or July options expire. The advantage of the TFSA is simply no tax. I can buy and sell all I want without any worries about income tax and take out the capital at any time again without any concerns about tax.
Trade Details: May 16 2014
Sell to open 5 naked puts BMO Stock June 21 expiry $74 put strike for .64 cents
Bought 500 shares of BMO Stock for $74.51
Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.