Looking for an option play for 2012? You might want to consider a long term option on one of the under-performing “Dogs of the Dow”. The following article explains why that may be a good move to make. As with all the suggested trades I post, make sure you do your own due diligence before following anyone’s advice.
As a contrarian by nature, I’ve always been attracted to the Dogs of the Dow strategy. And while the strategy doesn’t always work, its inherently high dividend yield provides some solace in falling markets. If you’re anything like me, however, “solace” is not what you’re looking for in an equity investment. So I’ve taken a look at a covered-call strategy that can provide significantly higher “yields” in a flat market and compelling double-digit returns in a rising market.
Because the Dogs of the Dow approach is based on a one-year buy-and-hold, my illustration uses LEAP options expiring in January 2013. The following table highlights ten potential trades that – if the respective stock prices remained unchanged through January 19, 2013 – would offer guaranteed realized returns ranging from 5.47% to 9.72%. If the underlying stocks were to hit the LEAP strike price, then the prospective maximum returns would range from 13.92% to 23.83%.
Here’s how to read the table using Intel as an example…
See Seeking Alpha for the table and the rest of the article
