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