216  •   The Intelligent Option Investor
Portfolio Management
As we have discussed, the best percentage returns on short-put investments 
come from the sale of short-tenor ATM options. I find that each quarter there 
are excellent opportunities to find a fairly constant stream of this type of short-
term bet that, when strung together in a portfolio, can generate annualized 
returns in the high-single-digit to low-teens percentage range. This level of 
returns—twice or more the yield recently found on a high-quality corporate 
bond portfolio and closer to the bond yield on highly speculative small com-
panies with low credit ratings—is possible by investing in strong, high-quality 
blue chip stocks. In my mind, it is difficult to allocate much money to corpo-
rate bonds when this type of alternative is available.
Some investors prefer to sell puts on stocks that are not very vola-
tile or that have had a significant run-up in price,
4 but if you think about 
how options are priced, it is clear that finding stocks that the market 
perceives as more volatile will allow you to generate higher returns. Y ou 
can confirm this by looking at the diagrams of a short-put investment 
given two different volatility scenarios. First, a diagram in which implied 
volatility is low:
Advanced Building Corp. (ABC)
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