One for the Slightly Advanced Player: Ford (F)

Ford's fair market value is placed at 21 by Morningstar which also gives it a 4* rating.[Reasons: F is the only car maker who didn't need a bail out; quality improving; pent up demand for cars over the years; historically very large average age of cars on the road; employment in the US improving; now held back due to Europe but could do much better if Europe smiles, ...] It is a worthy stock even today but if I didn't hold it already, I am not sure I will be a buyer today.

But I bought one bunch I own at $9.12 .  On 6/13/13 it closed at 15.53 which is a solid percentage gain for me since I bought only in 7/12.  I am scared that if the market makes a correction from the current peak and also gets spooked by Bernanke, then a substantial chunk of my gain can get wiped out too.  Yet, I don't want to be out totally since there is still some upward chance in the longer run.  What do I do ? Here is a table I computed on how I would fare on 1/14/14 assuming I hold 100 shares now and can write 1 call or 1 put since each contract is for 100 shares.

Scenario 1: Keep stock and do nothing Scenario 2: Keep stock, but write a call for 16, expiring 1/14/14 at     premium 1.05 Scenario 3: Sell stock now, write put for 16 expiring 1/14/14 at  premium 1.78

Price on 1/14/14	Scenario 1	Scenario 2	Scenario 3
12.00	288	393	419.00
12.50	338	443	469.00
13.00	388	493	519.00
13.50	438	543	569.00
14.00	488	593	619.00
14.50	538	643	669.00
15.00	588	693	719.00
15.50	638	743	769.00
16.00	688	793	819.00
16.50	738	793	819.00
17.00	788	793	819.00
17.50	838	793	819.00
18.00	888	793	819.00

Given that I want to lock my gain and yet do better than selling now, I will opt for scenario 3. What is going on here is simple:  With scenario 3, I am essentially selling Ford for 16.78 and buying back at whatever price prevails on 1/14/14; of course I am ignoring time value of money and such in this quick and dirty argument. I do miss some opportunity if F goes to 17.50 or above by Jan 14.  But if I attach any high chance for this event, then why would I even worry now?  (Compute what percentage gain this represents).  So, I am wiling to take that chance and be content more by protecting myself on the wrong side of that number.

Think who has a better chance to make money?  The bear or the bull ?  I am neither; I am being a bear for selling my stock and cashing out.  I am also being a bull by selling a put. Ha, ha !

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For those who don't know or want to refresh:
Writing a Call is to  promise to sell at a fixed price at or before a given time for a payment now called premium which I get to keep irrespective of whether the call is exercised by the buyer or not.
Writing a Put is to promise to buy at a fixed price at or before a given time for a payment now, called premium, which I get to keep irrespective of whether I am forced to buy or not.
With this information, you can recreate the table with some minor effort.
Our lessons to appear in a different series will take you there gradually.
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