Simply Puts

As someone who prefers to sell puts into stock pullbacks, I haven’t been presented with many opportunities lately. So I welcomed the market’s recent weakness (which may or may not portend the start of a more significant downturn) and used it to initiate the following short put and call positions:

Bank of Montreal (BMO: 57.66 0.00%, yld: 4.39%) – On Thursday I sold some December 40-strike puts against BMO on weakness:

Canadian banks have fared better than their U.S. and European counterparts in the recent crisis and predictions of dividend cuts are dwindling. BMO was one of those considered most at risk for a cut, but recently confirmed that the dividend will remain at current levels for now (even though it’s running at a higher payout ratio than the bank’s 45% to 55% stated policy).

Technically the stock remains in a strong intermediate-term uptrend, although the short-term picture is less clear. A drop to the low to mid $40s wouldn’t be at all surprising over the coming weeks/months. I’m comfortable owning the shares below $40, but if the stock should drop there before expiration I’ll consider rolling out to a lower strike.

BP plc (BP: 56.19 0.00%, yld: 5.98%) – On Thursday I sold some April 45-strike puts against BP on weakness in the oil sector:

Despite its near-term weakness, BP remains in a strong intermediate-term uptrend. A break below $48-$49 would change the picture to something more neutral/unclear.

I’m still looking for opportunities to increase my exposure in this sector, and BP is high on my watchlist of buy candidates. BP would seem to be a good value (with an even more tempting dividend yield than its current ~6%) in the low $40s, which would be my cost basis if ultimately put the stock.

Lockheed Martin (LMT: 82.58 0.00%, yld: 2.91%) – On Thursday I sold some March 60-strike puts against LMT into weakness:

Currently trading at about $78 and yielding 3%, the shares of this defense contractor are currently presenting a somewhat unclear/neutral intermediate-term picture. They’ve been under performing the market and other defense stocks recently, apparently on fears of reduced spending on big aircraft programs. However LMT appears undervalued here, and would be even more so at the ~$60 level, which would be my cost basis if I end up ultimately being put the stock.

Philip Morris International (PM: 50.30 0.00%, yld: 4.45%) – On Friday I bought back the January 2010 45-strike covered calls I’d sold against my long position in PM earlier this year and rolled them out and up by selling some January 2011 50-strike calls:

I own PM as a planned long-term holding, and given its recent strong performance and dividend increase I took the opportunity to roll out the covered call position at an almost break even cost (i.e., the respective calls were trading at almost equal values) rather than risk having the stock called away. My net cost basis for PM remains at below $40 per share.

Ship Finance International (SFL: 18.53 0.00%, yld: 4.86%) – On 9/21/09 I sold some February 10-strike puts against SFL into weakness:

The shares of this ship owner are currently showing a positive, but weakening, intermediate-term trend. A break below about $11 would suggest a more neutral to negative picture, with near-term support at the $8-1/2 to $10 level.

SFL’s current dividend yield is almost 10%, which can be taken in cash or shares. As always, the dividend payouts of commodity-based stocks like SFL will vary, so I’m not counting on any particular yield if put the stock (although it seems reasonable to think that dividend payouts from shippers may be close to bottoming for this cycle).