2016 in the money call options on RIG

[perrytime]

not much of a time premium with strike price of 35, surely this will make some $ in 2 years. Gulf o Mexico law suits should be over within a year, I assume that's hold RIG down. Could it hit $70 again?
Opinions welcome

 

[wingfooted]

Personally I would never buy a call option due to the time premium and lack of dividend.

If you want to leverage up - why not buy the stock, go on margin and collect the dividends. The interest could be fully offset (and more) by writing calls along the way.

As far as RIG's future prospects - more competition out there for deep water rigs. In addition to Diamond and Noble, a bunch of new players like Seadrill and Pacific Drilling. And the Macondo litigation could go on for decades. Transoceanic is a solid stock, but it's not risk free.

 

[NW-Bound]

I have not had much luck with buying call options, but I usually bought slightly out of money. So, I stopped, and now just buy the stocks themselves.

I have held RIG in the past, and had made some money. When the disaster struck, I quickly sold off whatever I had left.

I thought it was a bargain at the current price, and recently bought some at around $45. Low P/E, and some dividend. I am OK with it, and will hold for a few years, as I usually do.

PS. I usually do better selling out-of-money covered call options. I usually end up making more money than selling the stock outright, but less than selling the stock at the strike time. Oh well, that's how I do it when I find it hard to sell a rising stock, and have to use the call options to force myself to sell.

 

[cb7010]

You can also sell covered calls on the LEAP options you are buying for income..

 

[amfox1]

not much of a time premium with strike price of 35, surely this will make some $ in 2 years. Gulf o Mexico law suits should be over within a year, I assume that's hold RIG down. Could it hit $70 again?
Opinions welcome

I think $55-60 within a year looks doable. A 2016 35 call at $12.70 would then be worth $20.70-25.70 (profit of $800-1300 per option, or 65-100% return).

One alternative is to buy the stock at $47, collect four quarters of dividends ($2.25) and sell covered calls quarterly at 8% annualized ($3.75). At $55-60 in a year, profit would be $14-19 per share, or 30-40% return.

Another alternative is to sell a 2016 40 put for $5.20, use the proceeds to buy a 2016 43/60 call spread for $5.00 (assume it's roughly even after commissions). If the stock stays above $40, the trade is break-even or better. If the stock goes to $55-60, the trade nets $1200-1700 per option with no initial outlay (but $4000 on margin per put contract, assuming cash-secured puts).

At $35, the call is a total loss (down $12.70), the stock is down net $6 ($12, less dividends/call premiums) and the put/call spread is down net $5.

 

[Henry Lili]

Selling cash secured puts on stocks you'd like to own at the strike is a nice way to both generate income and offset a bit of the acqustion cost if the stock is "put" to you. Recently sold BAX puts 3 days before October expire; stock shot up a bit so I kept the premium. Has since come back down a bit so I'm looking to start building a bit of a postion. Similar with KO. In that case I bought the stock when it was down in price (DIV 3%) and sold puts at an even lower strike where I'd have been happy to buy more. KO has since rebounded so my equity postion is up nicely while the PUTS are on track to expire and I'll keep the premium.

 

[perrytime]

thanks for trading ideas, all my trading is in IRA, I don't know if cash covered or call covered option writing is allowed at Fidelity, I don't seem to be able to enter an order via online screens, guess I need to talk to someone there.

 

[amfox1]

You would need to fill out a Fidelity Options Application to add options trading privileges.

Fidelity retirement accounts are eligible only for the following strategies:

– Writing covered calls on equity options
– Buying calls/puts on index, interest rate index, and equity options
– Buying straddles/combinations on index, interest rate index, and equity options
– Writing cash-covered index and equity options
– Purchase of collars and conversions of equities
– Hedged puts

IRAs may have options spread trading added (requires an Options Spread Agreement
for IRAs)