Money and Finance
As promised, here are my put option plays to target a specific entry price on Procter & Gamble (PG). Procter & Gamble closed trading on 4/18/12 at $66.76. It is a Dividend Aristocrat with 55 consecutive years of raising their dividend. The lowest of their 1, 3, 5 and 10 year dividend growth rates is 8.48% with the highest at 11.2%. The most recent payout ratio is 60.00% with a current yield of 3.36% based off the recent dividend announcement. There were very few options worth considering on PG since it is such a stable and dependable company. With the increase in recent market volatility one can only hope for continued volatility to increase the option premiums. Nevertheless, I did find a few compelling option plays.
As mentioned in my stock analysis on Procter & Gamble, I would look to start accumulation of shares at $62.50 and lower. I don't like these moves as some that I have previously shown for put option plays mainly because the return is fairly low should the shares not reach your strike price. Especially since you would be tying up the money for 75% of a year. I'll refer to "The Intelligent Investor", my previous post about not waiting if the stock meets your value estimate including a margin of safety. If the option goes unexercised, you would have missed out on 3 dividend payments of $0.562 each from PG. That would effectively lower your cost basis from the current price of
$66.76 to $65.07. Since the option yield, Total Return if Expires, is higher in all cases this might not be that much of an issue. However if it was much closer to the same then I would not be interested in it at all. It's one more thing to think about this move since your return would be below my threshold.
I think the $67.50 put is probably the best option play at this time since it gives a significant return should the option not be exercised. You wouldn't have a realistic chance of the option being exercised too soon despite it currently being in the money, trading below the strike price, since there is significant time value built in to the option premium. With the $67.50 put you would have just over 6% of downside before you would lose money on the trade.
Overall I don't like the current option plays although the $65 is a little interesting since you can get a 7% return on your money which is nothing to laugh at while still getting a entry price below our targeted $62.50 beginning price.
- Selling Puts For Added Income
This morning Archer-Daniels Midland was trading at $26.97. Since I would like to get more into the stock with it trading around a 14% discount to my calculated fair value, I figured I would check out the potential option moves to make. The fair value...
- Selling Puts For Added Income
It's about time for another look at possible put option moves to get a better entry price or for added income. All calculations are based off of prices from March 20, 2012. Today I'll be looking at Bank of America. I still have high regard for...
- Selling Puts For Added Income
It's about time for another look at possible put option moves to get a better entry price or for added income. All calculations are based off of the close from February 28, 2012. The current price for Waste Managerment is $35.20 giving a 4.03% current...
- Selling Puts For Added Income
I've been looking around and have found some other potentially lucrative put option plays. All information is based off the closing values from February 10, 2012 and that the puts would be sold the morning of February 13, 2012. The current price for...
- Selling Puts For Added Income
I wish I had more capital to put to work right now because I've found some interesting put option moves that can give some solid return on otherwise idle capital. All information is based off the closing values from February 8, 2012. The current price...
Money and Finance
Selling Puts for Added Income
As promised, here are my put option plays to target a specific entry price on Procter & Gamble (PG). Procter & Gamble closed trading on 4/18/12 at $66.76. It is a Dividend Aristocrat with 55 consecutive years of raising their dividend. The lowest of their 1, 3, 5 and 10 year dividend growth rates is 8.48% with the highest at 11.2%. The most recent payout ratio is 60.00% with a current yield of 3.36% based off the recent dividend announcement. There were very few options worth considering on PG since it is such a stable and dependable company. With the increase in recent market volatility one can only hope for continued volatility to increase the option premiums. Nevertheless, I did find a few compelling option plays.
| Strike Price | Option Price | Cost Basis if exercised | Total Return if Expires | CAGR if Expires | YOC if exercised |
|---|---|---|---|---|---|
| $65.00 | $3.60 | $61.49 | 5.40% | 7.27% | 3.66% |
| $67.50 | $4.80 | $62.79 | 6.98% | 9.41% | 3.58% |
| $70.00 | $6.45 | $63.64 | 9.09% | 12.30% | 3.53% |
As mentioned in my stock analysis on Procter & Gamble, I would look to start accumulation of shares at $62.50 and lower. I don't like these moves as some that I have previously shown for put option plays mainly because the return is fairly low should the shares not reach your strike price. Especially since you would be tying up the money for 75% of a year. I'll refer to "The Intelligent Investor", my previous post about not waiting if the stock meets your value estimate including a margin of safety. If the option goes unexercised, you would have missed out on 3 dividend payments of $0.562 each from PG. That would effectively lower your cost basis from the current price of
$66.76 to $65.07. Since the option yield, Total Return if Expires, is higher in all cases this might not be that much of an issue. However if it was much closer to the same then I would not be interested in it at all. It's one more thing to think about this move since your return would be below my threshold.
I think the $67.50 put is probably the best option play at this time since it gives a significant return should the option not be exercised. You wouldn't have a realistic chance of the option being exercised too soon despite it currently being in the money, trading below the strike price, since there is significant time value built in to the option premium. With the $67.50 put you would have just over 6% of downside before you would lose money on the trade.
Overall I don't like the current option plays although the $65 is a little interesting since you can get a 7% return on your money which is nothing to laugh at while still getting a entry price below our targeted $62.50 beginning price.
- Selling Puts For Added Income
This morning Archer-Daniels Midland was trading at $26.97. Since I would like to get more into the stock with it trading around a 14% discount to my calculated fair value, I figured I would check out the potential option moves to make. The fair value...
- Selling Puts For Added Income
It's about time for another look at possible put option moves to get a better entry price or for added income. All calculations are based off of prices from March 20, 2012. Today I'll be looking at Bank of America. I still have high regard for...
- Selling Puts For Added Income
It's about time for another look at possible put option moves to get a better entry price or for added income. All calculations are based off of the close from February 28, 2012. The current price for Waste Managerment is $35.20 giving a 4.03% current...
- Selling Puts For Added Income
I've been looking around and have found some other potentially lucrative put option plays. All information is based off the closing values from February 10, 2012 and that the puts would be sold the morning of February 13, 2012. The current price for...
- Selling Puts For Added Income
I wish I had more capital to put to work right now because I've found some interesting put option moves that can give some solid return on otherwise idle capital. All information is based off the closing values from February 8, 2012. The current price...