John, here's the rationale for selling SNDK put options with a striking price above the present price and an expiration date at least three months from now.
First of all, the April 75 put option trades near $10 (we'll use nice round numbers for convenience). Before someone decides to sell a put, he or she should be comfortable buying the stock at the striking price (in this case, $75). If you sell the put for $10 and the stock remains where it is now, near $65, you in effect pay $65 net when they put the shares to you next April. That's not a bad price to pay, in my view.
Second, if the stock recovers to, say, $70, then the put option with $75 striking price eventually expires with an intrinsic value of $5. You can either buy back the put or buy the stock. If you buy back the put for half of what you received initially, then you doubled your money in about 4 months.
Third, the domestic political situation requires that the administration do everything it can to obtain an economic recovery. If the economy (and the stock market too) isn't doing substantially better than it is now, then a lot of people may vote for a different candidate in November. On the assumption that the overall market will be somewhat better in April than it is now, we can also assume that stocks like SNDK will appreciate as well, especially now, having joined the NASDAQ index.
I'm sure there are other favorable and unfavorable factors in evaluating this investment, but I wanted to assure you that it is a calculated risk, and I emphasize the word calculated.
Art |
