If you've never heard of Silky Sullivan you're in for a real treat. Watching this video will also let you know how my August trade turned out. More on the trade later... Go watch the video!
Last Monday, Aug 17th, my $25 Put trade on Realty Income (O) looked like Silky Sullivan (on the backstretch) to finish above $25 as it dropped from $26 down into the $23.50 range. However, it was oversold and came roaring back to finish above $25 on Friday, the August option expiration day, at $25.14. Hey a win is a win whether it's by a nose or 41 lengths!
Results: 2.2% monthly gain (26% annualized) and we are back in all cash (who said Finance was boring?)
Having our (sell-to-open) Put expire so we get to keep the premium income is our primary goal, but what is our strategy if the stock was below $25 Friday and we get assigned (have to purchase) the stock at $25? Well first of all our #1 rule is to always buy stock in fundamentally strong companies that we would be willing to buy anyways. In this case, because of our 55 cent option income premium our cost basis would have been $24.45 ($25-0.55).
Now that we own the stock we can either hold the stock for a week or two and sell it for a profit, or generate income by selling covered calls at or above the $25 strike price while collecting O's healthy 6.5% dividend until 'O' comes back to $25 and we decide to sell it. Either way we continue to generate monthly option income! Fun huh!