Today I wrote a put on a really solid business.  The company is Johnson & Johnson (JNJ).  They have a long history of sales growth and topped 73 billion last year.  As sales have increased, so have profit margins (currently over 23%).  They really stand out in earnings per share growth with a pace just shy of 12% for the past two and half decades.  Similarly, cash flow has grown at pace just over 12% over the same time period.  As might be expected, share price is up over 1200% over the past 25 years as a result.

This is a super solid company and it is trading at a fair price.  I consider this a fine opportunity then, to get paid to make a low ball offer on 100 shares.  So I wrote one put on the 19JUN15 expiry at the 100 strike for 1.34.  The trade will be active for a scant 40 days, after which time I will be obligated to purchase 100 shares for 10,000 if the price is below 100 at the time.  In compensation for making this lowball offer (1.3% below the price at the time the contract was written) I’ll earn 12.23% annualized.

Honestly, getting assigned would be a great deal.  The Lizard King would then feast on the 3% dividend yield, while writing slightly out of the money covered calls to capture additional income while waiting for the inevitable price appreciation.

This is a trade that shows the true power of writing options for income.  Risk is minimal as the down side is owning a truly fantastic business at a discount price.  Return is over 12%, outpacing the long term average of the S&P 500 handily.  The trade is liquid, repeatable, and available essentially every day the market is open.  The only downside is the 100 share price results in a 10,000 dollar commitment.  Junior raptors should stick to smaller bites to keep any position from making up more than 7% of their portfolio as a matter of prudent risk management.  So the minimum entry requirement here is a 143 thousand portfolio.  Don’t fret if you aren’t quite there yet.  I’ll be providing plenty of trades in the future with a lower bar to entry.  At 12% return a year, you will get there fast.

Devour your prey raptors!

Write puts Johnson & Johnson (JNJ)

Never miss another opportunity to devour prey!

5 thoughts on “Write puts Johnson & Johnson (JNJ)

  • May 11, 2015 at 6:39 pm
    Permalink

    Raptor,

    Nice trade. I wrote a covered call on BBL this morning as well. I am really starting to dig options. Keep up the great work.

    MDP

    Reply
    • May 11, 2015 at 6:50 pm
      Permalink

      MDP are great initials. It could also be Million Dollar Portfolio!

      Options are great when used the ‘safe’ way. Used to create leverage, they blow up portfolios. I’m just here to preach the good news.

      Reply
  • May 12, 2015 at 11:29 pm
    Permalink

    Sounds like you’ve found yourself a win-win. Good work! Thanks for sharing and I hope it works out well!
    -Bryan

    Reply

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