Walter Energy, Inc. (WLT): This Coal Stock Could Deliver a 4%-Plus Return in Just 10 Days

Rule Two: Sell either of the front two option expiration months to take advantage of time decay.

Collect premium every month on put sales until you are assigned shares at a cost-reduced basis. Every month that you keep the premium is money subtracted from your entry price.

Recommended Trade Setup: Sell to open Walter Energy, Inc. (NYSE:WLT) July 10 Puts at $0.40 or better. (This is a volatile stock, so I suggest using a limit order to get the desired price.)

This cash-secured put sale would assign long shares at $9.60 ($10 strike minus $0.40 premium), which is about 17% below Walter Energy, Inc. (NYSE:WLT)’s current price, costing you $960 per option sold. If the options expire worthless, you keep the $40 premium, earning a potential 4.2% return in 10 days.

But remember, you should only sell this put if you want to own Walter Energy, Inc. (NYSE:WLT) stock at a discount to the current price. If you are assigned the shares, an August covered call can be sold against the stock to lower your cost basis even further.

If the stock does not fall below the strike price before expiration, then you keep the premium you collected, essentially getting paid not to buy the stock.

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