Friday, October 16, 2009

JNJ Bull Put - New Trade



Considerations:

· JNJ is one of the strongest companies in the world. It is in the league of MCD and WMT with positive cashflow, profit, revenue growth and a steady dividend of around 3% currently. It buys back the same amount of stock. It is the biggest healthcare company in the world, second biggest pharmaceutical, largest consumer health product and medical devices. It is a cash generation machine! PE is only 12.
· The biotech sector is in an uptrend
· JNJ has consistently paid dividends for more than 45 years. If there is a break down in the index, this is the stock that will hold. I intend to keep this stock for income purpose.
· Now that JNJ has moved to its intermediate support at 60, I decided to place a bull put


Trade:

BTO 10 contracts Nov 55 Put for 0.08
STO 10 contracts Nov 60 Put for 1.07

Net Credit or Reward: 0.99
Risk: 5-0.99 = 4.01

PE: Option expired worthless and keep the credit

SE: If SP goes ITM, take ownership of stock and collar it. I am happy to own the stock and continue to keep it as an income generating stock for the dividend and continue to use SC to gain credits.
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2 comments:

  1. josephOctober 17, 2009 at 11:04 AM

    Yes, the support is at 60. However, the question I have on this trade is what to do after owning the stocks. The call premium is quite low. Nov 65 call is worth $0.10. Can not make too much profit on it. The positive side is the 3+% dividend.

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  2. InnovestorNovember 17, 2009 at 2:34 PM

    I bought back the SP for 0.09. I am leaving the LP along in case JNJ breaks down with any bearish movement of the market. Probability is low but it costs only $10 thus it is like buying a lottery ticket.

    With the closure of this trade, I collected .99-.09-0.01 = .89 or $890.

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About Me

An engineer by training graduated with B.Sc (hons) and MBA from Strathclyde university in Glasgow, Scotland. Started as an engineer in R&D for 3 years with Philips. Then, worked with DuPont for 13 years. Last job was VP, Marketing for Asia Pacific. Left to start a number of companies in various segments which include a large electronic distribution, a VoIP provider, an internet trading portal in Australia,and an executive training consultancy firm. Have listed companies in NYSE, Australia Stock Exchange, Singapore Stock Exchange Main Board. I was on the Board of Directors for 1 company listed in Thailand, 1 in Singapore and 1 in Australia. Was in the senior management of a company listed in NYSE. Still holding major share positions in the VoIP and Executive training companies. Both are private companies.

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