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3M is an innovative company that has evolved greatly over the past four decades. Interestingly, the stock has rallied following February 09 for twelve years in a row. Take a look below:
Making the assumption that MMM is not going to depreciate over this same period in 2014, you want to structure a position that has a defined risk and benefits from premium erosion. Here is an example:
Notice that the contracts expire in 67 days, which is approximately the duration of the seasonal pattern. With the spot price at $130, you can sell the April $130 strike PUT option and purchase an April $125 PUT option and collect the difference. If you were to sell 10 of these 'bull-put spreads' then you would stand to gain $1,900 and would be risking $3,100. In the event that the stock stays flat, you are still earning a few dollars per day in time (theta) decay. Stay smart and trade safe!
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