Fri Feb 1, 2008: Selling GOOG Puts

The stock of Google (NASDAQ-GOOG, 515.90) has corrected more than 30% from its high of $741.

Chart of GOOG stock

Selling puts now can offer potential income and/or a chance to buy the stock at an even deeper discount.

The March 500 puts can currently be sold for 21.90 ($2,190 per option contract for 100 shares). Ignoring commissions, this would provide the option writer a 4.6% income for six weeks, assuming the deposit of $47,810 in cash so there would be just enough in the account to purchase the stock if the option got assigned.

If the stock stays above 500 it will not be assigned, and in fact the actual margin requirement is much less. If we assume a 30% requirement of $15,477 then the percentage income is much higher.

If the stock closes below 500 at March expiration, the net purchase price will be only $478.10.

Until next time, best of luck with your option investments!