3 Smoking-Hot Options Plays

I�m not a smoker, but unlike many nonsmokers I have no animus toward those who partake in tobacco products.

I also don�t harbor any kind of grudge toward tobacco companies, as they provide a legal product that consumers demand. In fact, I embrace the industry for being able to deliver consistent profits, outstanding share price performance and significant income streams to shareholders via high dividend yields.

In particular, I like the recent uptrend in many of the standout companies in the sector, as it represents an opportunity to bank some smoking-hot profits using out-of-the-money call options.

Three stocks with the potential to ignite your portfolio with call options are Lorillard (NYSE:LO), Philip Morris International (NYSE:PM) and Reynolds American, Inc. (NYSE:RAI). Let�s take a closer look at each one, along with their out-of-the-money calls.

Lorillard

• Yield: 4.48%
• Year-to-date gain: 41%

Lorillard is a U.S.-based cigarette maker, offering 43 different products under the Newport, True, Maverick and Old Gold brand names. Lorillard sells its products primarily to wholesale distributors, who then service retail outlets and chain-store organizations.

The stock has a hefty dividend yield of 4.48% (based on the Oct. 13 share price). But the stunning thing about LO stock is that its yield comes with a 41% year-to-date gain in the stock. Intrepid investors who think the stock�s upside isn�t finished yet should check out the LO Nov 120 Calls.

Philip Morris International

• Yield: 4.68%
• Year-to-date gain: 13%

Philip Morris International is a name synonymous with tobacco products, and for good reason. The company�s portfolio of international and local brands includes Marlboro, Merit, Parliament and Virginia Slims.

Philip Morris� global reach extends to approximately 180 countries in the European Union, Eastern Europe, the Middle East, Africa, Asia, Latin America and Canada. At a dividend yield of 4.68%, and a year-to-date gain of 13%, PM has certainly lit up investors� portfolios. Get an enhanced dose of PM upside by buying the PM Nov 67.50 Calls.

Reynolds American, Inc.

• Yield: 5.42%
• Year-to-date gain: 19%

Reynolds American, Inc. sells its cigarettes under the Camel, Pall Mall, Winston and KOOL brands. The company also sells a lot of smokeless tobacco products, such as the Grizzly and Kodiak snuff brands.

The tobacco giant�s red-hot yield of 5.42% puts it near the top of the three tobacco stocks listed here. And with that yield, shareholders have also captured a year-to-date gain of 19%. That combination makes RAI one great stock for capturing both dividends and share price appreciation, but options players can possibly add to that upside via the RAI Nov 40 Calls.

All three of these out-of-the-money call options are bullish bets on the continued upside in the tobacco sector. So, if you�re ready to light up your portfolio (and you�re willing to take the risk), then go big on big tobacco.

At the time of publication, Jim Woods did not hold a position in any of the aforementioned stocks.