From this morning's post:
If you want a fun play today, SCHN should benefit from yesterday's ITC ruling that the US may put duties of 500% on imports of certain Chinese steel products in anti-dumping retribution. This is also fantastic for Cliffs Natural (CLF) – a big holding of ours at PSW.
SCHN pays a 4.25% dividend, which makes them an OK stock to own but we never pay retail at PSW and 4.25% is only 0.75 a year and we can collect $1.50 right now for selling the Feb $13 puts, which is 2x a year's dividend collected for just 8 months and we don't even have to bother owning the stock. Our worst case is being assigned SCHN at net $11.50, which is 29% off the current price – nothing wrong with that! So we can commit to owning 2,000 shares by selling 20 contracts for $3,000 and the net ordinary margin requirement is $2,635 so very margin-efficient as well. Let's add 20 shorts to our Long-Term Portfolio.
See, that's how we come up with a trade idea at PSW. We read the news, think of companies that might be affected, find ones that are trading below value and then construct a sensible options play to take even further advantage of the situation. Once you get used to our system, you will never pay retail for a stock again!
