We just passed expiry Friday so it is time to roll the diagonal call on PEP. Remember we have a cost basis in PEP of 17.47. This gives us quite a lot of leverage to upside growth. It also lets us write out of the money calls with a leveraged return. On tap is PEP150515C00105000 which we are going to sell for .13 a contract. If we were doing a conventional buy/write strategy the return would be pitiful against the current price of 96.90. But against a cost basis of 17.47 our annualized return is 8.93%. That is an outsized return for such a large and stable company (and let’s not forget we retain over 5 to 1 leverage on share price appreciation).
Since Pepsico is both in the habit of raising its dividend and buying back stock, we can expect share price appreciation even without growth in sales. But let’s look at sales growth anyway over the last report trailing four quarters:
Sales growth is actually quite robust! Gross margins run over 50% so raptors can expect to do quite well on their shares of PEP.
Devour your prey raptors!