Exelon Corporation (EXC): An Opportunity To Make 18% a Year On a Utility Stock

How this plays out

There are three different scenarios that can happen on expiration day on October:

1. Share price of Exelon > $31: You get to pocket the premium and have no obligations.
2. Share price of Exelon = $31: You get to pocket the premium and have no obligations.
3. Share price of Exelon < $31: You get to pocket the premium, but you will also be obligated to buy the shares at the predetermined price of $31. Since this is an excellent price to pay for the shares, we are fine with that obligation. Of course, you need to adjust the number of shares you are obligated to purchase to the trading position size that is right for you. This rule applies to any trade you make, regardless of the use of options .

The Foolish takeaway

I recommend that you sell to open the Exelon Corporation (NYSE:EXC) October 2013 puts, at the $31 strike price, for no less than $165 an option.

The article An Opportunity To Make 18% a Year On a Utility Stock originally appeared on Fool.com.

Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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