My previous put selling trade on Ferrellgas Partners LP (see the trade here) expired worthless for full profit last Friday. I still like the stock and decided to continue selling puts against it.
As I wrote in my previous article about selling puts, you should do it only against stocks, you like to own. When I opened the previous contract I was sure for about 98% that I wanted the stock. Today I am 100% sure about this paper.
Nevertheless I opened quite a long contract today and collected $110 premium.
If this contract expires worthless I will make 5.5% or 11.02% annualized profit. If the stock drops below my strike price I will get assigned and yet keep the premium. My cost basis will be $18.9 a share. If the stock drops below my cost basis (break even price) too deep I will roll the put lower and further in time.
08/19/2013 09:41:27 Sold 1 FGP Feb 22 2014 20.0 Put @ 1.1
When you do this against stocks you like to own, and the options move against you, do you purchase the stock with your option?
It depends, if I see a better opportunity rolling the put down rather than being assigned I roll it down and further in time. If there is no such opportunity available (or I would have to pay – a debit transaction in lieu of credit transaction) then yes I let the option assign a stock to me and buy the stock thru the put option.