| In the first three parts of this series, we used | | | | and no commission fees. |
| these screens to find high dividend stocks with | | | | OLN is currently trading at $12.99. |
| strong balance sheets: | | | | 1. Compare the cash yields of selling Nov $12.50 |
| 1. High Dividend Yield - Above 5 % | | | | puts to the dividend yield: |
| 2. Moderate Dividend Payout Ratio - Below 50 % | | | | If you were to buy OLN outright, at $12.99, you'd |
| 3. Less Than 40 % Above 52-Week Low * | | | | receive 2 remaining $.20/share dividends prior to |
| 4. Options Available | | | | Nov. expiration, which equals $.40/share, a 6.2% |
| 5. Current Ratio: Over 1.5 | | | | annualized yield. |
| 6. Long Term Debt to Equity: Under .5 | | | | OR |
| In part 3, we adjusted screen # 3 to: Over 50% | | | | If you sold Nov. $12.50 puts,(OLNWV), you'd |
| below 52-week high". | | | | receive $1.60/share, a 28.5% annualized yield. |
| This adjusted screen gave us Olin Corp., (OLN), a | | | | Clearly, the put sale offers a much higher yield. |
| Basic Materials/Diversified Chemicals company, | | | | IMPORTANT CAVEAT: The put sale will be a |
| which has two divisions -chlor alkali specialty | | | | short term gain, which is taxable at your personal |
| chemicals and ammunitions for sports and the | | | | tax rate, as opposed to the current 15% tax rate |
| military. | | | | for qualified dividends. |
| Olin currently has a good dividend yield of | | | | Your Breakeven Price on this put sale is $10.90 |
| approximately 6.2%, and their dividend payout | | | | ($12.50 strike-$1.60 put premium). |
| ratio of less than 37% is very low for a high | | | | When the November expiration comes, there are |
| dividend stock. Olin's 33% Debt-To-Equity ratios | | | | 2 possible outcomes: |
| are strong and identical for both long term and | | | | 1. OLN declines to near or under $10.90, (($12.50 |
| short term debt. | | | | strike price less $1.60 put premium), and you are |
| Current Ratio: 1.9, meaning that their current | | | | sold, (assigned), 100 shares of OLN at $12.50 |
| assets are nearly twice as high as their liabilities. | | | | share, (the put strike price). |
| OLN is also cheap by many other metrics: | | | | However, your net cost would be $10.90, (the |
| Growth: A low PEG ratio of only .57 (investors | | | | $12.50 strike - $1.60 put premium you received). |
| look for PEG's under 1) | | | | This would put you approximately 21%+ over the |
| Price/Book (P/B): Only 1.40 | | | | OLN's 5-year low of $8.97. A pretty reasonable |
| Price/Earnings (P/E): 6.17 | | | | price to pay for such a strong company. |
| Return on Equity (ROE): over 22% | | | | 2. If OLN doesn't decline to near or under $11.90, |
| Return On Investment (ROI): 12.24% | | | | your broker will release your cash reserve, and |
| Return On Assets (ROA): 9.67% | | | | you walk away with $160.00 for every put |
| Within their Diversified Chemicals peer group, they | | | | contract you sold, a 28.5% annualized profit. |
| have the highest dividend yield and the lowest P/E | | | | (Either way, you keep your put premium $, |
| ratio. | | | | whether you get assigned shares or not). |
| What if you want to be conservative and build a | | | | Many investors have been worrying about being |
| position in OLN at a price lower than its current | | | | left behind by the current rally. Selling puts is a |
| market? | | | | way that you can still profit from solid companies, |
| SELLING PUTS is a conservative high yield | | | | even though their prices have risen. |
| strategy which investors use to accumulate | | | | In the 5th and final part of this series, we'll discuss |
| stocks at prices lower than the current market. | | | | other ways to analyze selling calls and puts. |
| Each put contract sold potentially obligates the | | | | Disclosure: Author is long OLN. |
| seller to buy 100 shares of the underlying stock. | | | | Disclaimer: This article is written for informational |
| Brokers will vary in the cash reserve amounts | | | | purposes only. Author not responsible for errors, |
| they require a seller to post - some brokers want | | | | omissions, or acts taken by third parties as a |
| 100%, while others require less. | | | | result of reading this article. |
| This trade example will use a 100% cash reserve, | | | | |