The put contract our Yield Boost algorithm identified as particularly interesting is at the $20 strike, which has a bid at the time of this writing of 42 cents. Collecting that bid as the premium represents a 2.1% return against the $20 commitment, or a 2.6% annualized rate of return.
Selling a put does not give an investor access to CSCO’s upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Cisco Systems, Inc.sees its shares decline 19.7% and the contract is exercised (resulting in a cost basis of $19.58 per share before broker commissions, subtracting the 42 cents from $20), the only upside to the put seller is from collecting that premium for the 2.6% annualized rate of return.
Looking across the string option, highlight a particular call contract for interest due in July 2015,to shareholders of Cisco Systems,Inc.(NASDAQ: CSCO) are looking for their income through action 3.1% increase in annual dividend yield.Selling covered call strike of $ 27 and collect the premium on the basis of 74 cents offer, 3.6% additional return on the current share price of a total annual rate of 6.7% in stage, in which the action is called annualized removed.
Each head would lose more than $ 27 when the stock goes up and recovered,but need CSCO shares 8.4% from current levels above that to happen,which means that in the case where the camp is,the shareholder is a 11.4% return earned this level of trade,plus dividends before camp was collected under called.The graph shows the bottom 12 month history of trade in Cisco Systems,Inc. highlighting in green, where exercise $ 20 is on this story and highlighting the year of $ 27 in red.
The chart above, and the stock’s historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the July 2015 put or call options highlighted in this article deliver a rate of return that represents good reward for the risks.
