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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: Chris Forte who wrote (3706)	2/8/2010 4:21:13 PM
From: upanddown	1 Recommendation Read Replies (2) \| Respond to of 34328

If you were interested in buying McDonalds a little lower than it is now, say 400 shares, could you lay out a real time example of how you might buy MCD? Sure, Chris. MCD closed at $62.92. All option contracts are for 100 shares. You could have sold 4 Feb $62.50 contracts at the close for approx .68 ea. You immediately collect a premium of $272 - comm. If you pay $10 comm, it should be approx $15, maybe $1 per contract extra. If MCD closes at or above $62.50 a week from Fri (2/19), you keep the premium. If it closes below $62.50, you are obligated to buy 400 MCD at $62.50. Your net cost is $62.50 - .68 premium, so you would average in under $62. The nice thing about getting the stock on 2/19 is that you would then collect the .55 div going ex-div on 2/25. If MCD is below your breakeven under $62, you start out with a losing position. If you don't get the stock on the 19th, you could try again by selling 4 Mar contracts that expire 3/19 (always the 3rd Friday of the month). I would wait until ex-div date on 2/25 to sell Mar puts since the downward stock adjustment for the dividend should raise put premiums. Put selling is best on weak days for the underlying stock since as the stock goes down, the put premium goes up. Remember that you always have to start out with a stock that you are ready to buy at the current price. John