Back on 12MAR15 I introduced you to Archer Danial Midland (ADM), a company with a huge tailwind behind it in the form of Chinese and Indian demographics.  I’m going back to that theme today with General Mills, Inc. (GIS).  See, over the next couple of decades about a billion people in China and India will enter the middle class.  They will eat more processed and convenience foods, especially when they are in a rush in the morning to get to their now less agricultural jobs in the city.  General Mills stands to open up a huge new market with good margins.  The company is attractively priced versus its peers and has raised its dividend distribution for 11 consecutive years.  It yields 3.15% at today’s price.

I am writing GIS150515P00055000 with the hope of getting assigned shares.  Upon assignment, I will repeatedly go one month out on expiries and write a call about 10% out of the money.  This should boost annualized returns by about 2% (more than 60% higher than relying on dividends alone!) while allowing me to capture upside price appreciation as the company slowly but surely gains a foothold with the new eastern middle class.  I received 1.30 per contract, making for a 19.17% annualized yield over 45 days on this safe and stable blue chip.  Tasty!

Devour your prey raptors!

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General Mills, Inc. (GIS)

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4 thoughts on “General Mills, Inc. (GIS)

  • April 1, 2015 at 6:32 pm
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    Hi FV, Thanks for the update.

    When you write puts, you hope to be assigned. When I write puts, I hope not to be assigned, just for a little free money. That’s why my return is so low. I think I need to change my thinking.

    Also, when you write puts, do you have them all cashed covered, or you only reserve a certain portion of cash for the puts writing?

    Thank you. — MU

    Reply
    • April 1, 2015 at 7:44 pm
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      MU,

      Thanks for reading! I write my puts cash covered. Sometimes I cut it close and let the premium income cover the last bit I need to have enough cash. If you write puts unsecured (on margin) you have a 20% margin requirement which makes you return 5X but also your losses 5X if you make a Dumbo T-Rex move.

      Reply
  • June 2, 2015 at 3:24 am
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    How does equity secured puts ie Option Buying Power, work on selling puts ? Put is secured by equity, what happens if put assigned ?
    What is your recourse then ? What is the plenty, other than margin cost alone?
    Is the put exercised by margin, and triggers margin, 1% at IB, 7.75% at most others ?

    Reply
    • June 2, 2015 at 6:02 pm
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      When you write an equity secured put, you risk taking a cash deficit position when assigned. Whatever your negative cash balance is will be charged an interest rate by your broker. About 1.6% at IB and much higher elsewhere unless you are an institutional client with millions on deposit. Margin for options can be dangerous. You usually are allowed 5 to 1 leverage on options but only 2 to 1 on the under lying stock. So if you use your maximum leverage and get assigned, you can find yourself immediately in a “margin call” scenario. Note that at IB, they do not issue margin calls. A computerized algorithm will liquidate your positions (in the manner deemed most beneficial to IB) until you are in compliance. You will likely take losses and have tax consequences. Use of margin is completely forbidden in tax advantaged accounts.

      Reply

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