For those of you who are able to trade options, I have been writing more and more about naked puts, "selling to open" stock options that I have been doing all year with great returns due to an overabundance of fear.
Yesterday I reviewed one example in Chasing Value: GE -- maybe not eating out of trash cans after all, and today I review some of my favorite ways to make money and improve my portfolio.
Let me start with United Parcel Service Inc. (NYSE: UPS), a company with a great balance sheet, strong management, and trading 29% off its 52-week high, about where I sold it last year. I bought it earlier this year at the bargain basement price of $44, and now wished I had bought more.
UPS closed yesterday at $50.32. I have been watching it like a hawk, but it just teases. It seems absent some new oil shock it might not get that low again. However, I was able to do a naked put on UPS October 2009 at a $50 strike price and received $4.01 per share, cash on the spot.
That makes my break-even position $45.99, a figure it has not been since March, and before that, NEVER. Since UPS went public in 2000, the lowest it traded at was $49.80, and closing at $51, October 31, 2001. You can see that if the option expires, I found money on the street, and if it's "put to me" I own more of a great stock at a great price, which has a beta 0.9, a P/S of 1.09, a ROE of 33%, and pays a 3.6% dividend yield.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares and options in UPS.
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