Two important caveats
The strategy mentioned above is regarded in the industry as “naked put selling.” The goal here is to boost our overall return by committing to buy Intel Corporation (NASDAQ:INTC) shares, at a predetermined price. It makes perfect sense, but you need to keep two things in mind.
First, you need to adjust the number of Intel Corporation (NASDAQ:INTC) shares you are obligated to purchase to the trading position size that is right for you. Never commit to buy more shares than you are financially able to.
Second, with these types of transactions – your broker will ask that you put aside a certain percentage of the total value of your commitment in cash or marketable securities. The purpose of this margin is to back up your commitment to buy Intel shares. You can check out FINRA’s specific margin requirements here.
The Foolish takeaway
I recommend that you sell to open the Intel Corporation (NASDAQ:INTC) October 2013 puts, at the $23 strike price, for no less than $120 per option contract. This translates into an immediate 5.45% gain on your investment by waiting only three months until the October 2013 expiration. Selling put options on Intel is the safest way to generate income from a blue- chip stock while you wait. Invest accordingly.
Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Intel. The Motley Fool owns shares of Berkshire Hathaway and Intel.
The article How You Could Make 22% a Year With This Chipmaker originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.