The ASX200 VIX is currently trading at 18.75, about 50% higher than the average of 12% in the past few months. Now is a potentially good time to take advantage of the heightened CBA stock insurance premiums during market fear and sell a put option (ASX CBA) on CBA shares to scared investors.
CBA stock (ASX CBA) just paid its dividend today and has reached the value area low (VAL). This is the bottom of the consolidation at around 73 p/s, where it will find some support. ASX CBA shares as of this writing are trading at 73.82 p/s. We think CBA shares are probably the best out of the big four.
If you are not sure how put options work, read our article on how to become an insurance seller with put options.
If we are to sell the 7300 strike put option with a 28th March 2018 expiry (42 days), we can expect to pick up approximately 1.22 p/s in premium. On 1000 CBA shares (10 contracts), this is $1,220 in premium on approximately $73,820 in CBA shares.
If the option expires and the stock price is above 73.00 p/s, this is a 1.65% return in 42 days before commissions or an annualised return of 19%. Break-even would be $71.78 p/s (strike minus premium) – as long as CBA shares stay above this price level, we would be in profit.
At this point, selling options is great due to the high premiums. The insurance business is good when everyone is scared.
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Henry is a co-founder of MF & Co. Asset Management with over 12 years experience as a trader, investor and asset manager. Henry’s focus is on High Net Worth Wealth Management and using algorithmic quantitative trading systems to invest for his clients. Henry also trains new Interns and Advisers on trading and risk management.