Bryan Perry

Take Options Profits in STRIDES

by Bryan Perry   10/24/08

Merrill Lynch's Web site explains how this can protect you if the stock falls: "If the Callable STRIDES pay an annual coupon of 6% over two years but, at maturity, the underlying stock is down 10%, you will actually be up approximately 2%, due to the fact that you have received a 6% coupon in both the first and second years."

Like any type of investments, STRIDES are not foolproof money-making vehicles. Because they are not widely known, they are not highly liquid. Typically, when you're trading stocks and options, liquidity is a huge "must have" on the checklist because not only do you want to be able to easily buy them, but you also want to be able to sell them when you want to.

Less-liquid securities are more-challenging to cash out of when buyers aren't easy to come by. For example, the JetBlue STRIDES are currently trading at $15.71 a share and carry a dividend yield of 2.7%. However, they didn't move in price in more than a year and a half, but those who have been in this position that long enjoyed a 35-cents-per-share dividend.

STRIDES are also available in Apple (STRIDE ticker: AVN), Best Buy (STRIDE ticker: BLB) and Caterpillar (STRIDE ticker: STF). Note that because STRIDES function similar to covered calls, they may be best utilized when you anticipate the underlying stocks won't make a dramatic movement (up or down), as these strategies are designed to generate income in exchange for a capped downside risk/upside return potential.

You should talk to your broker to see whether STRIDES are right for you. But if you are looking to buy any of these stocks and sell calls against them for income, or if you're looking at buying LEAPS on any of these names in lieu of the stocks themselves, STRIDES can serve as a one-stop shop to let you be in a name for the same amount of time as holding an option, while collecting income in the interim.

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For more options trading ideas, visit OptionsZone TV. If you enjoyed this article, check out Bryan Perry's "Keep Risk in Check" and "How Stock Splits Impact Options."