The third week of the month is always gift giving time to options sellers. Why? All monthly options become, in effect, weekly options the third week of the month as they expire this Friday, December 21. And since the market is in the holiday spirit, look at a good holiday stock to generate some quick cash.
Tiffany & Company (NYSE:TIF)
Wouldn’t it be a great thing to take cash out of Tiffany rather than leaving it at the store? Selling puts on TIF, a well managed and undervalued outfit, is a better cash generator than you might expect as the options have very rich premiums when you consider they expire this Friday after the close.
As with the sale of any put, you have to be willing to own the stock at the strike price or keep your capital tied up and toll it into another month if the stock dips in price. That is the only disadvantage of selling a monthly as if it were a weekly – if you need to roll to a later date, that next date is at least a month out.
Why Tiffany now?
Besides the obvious – I will be in the store before Christmas, trust me on that one. Tiffany is uncomfortably close to my home, less than a mile – and the company actually offers gifts perfect for a New Frugal American consumer. I bought a whisky glass there earlier this year for less than $40 – it was for a newborn, but that’s a long story for another column. Americans continue to shun “a lot of gifts” for “one special gift” be it for Christmas, Chanukah, graduation or whatever. The stock has sold off a bit due to sales issue related o the European recession but for a week I think you could be in good shape selling a put and if you own it at the right price – to my mind that is $57.50 – you simply turn around and start selling calls.
Take a look at the December $57.50 puts. Sell a put and you will generate cash that is just shy of a one percent return in less than a week, almost a 48% annual return. If you get put the stock, the premiums on the calls are very rich and you could generate a 15%-20% return selling monthly calls without any appreciation in the stock.
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