Markets are closed today for Good Friday.
music selection: “I Walk The Line” — Johnny Cash
I have three more put writing candidates for you today. None of these are actual trades, although I do have an open position in DIS. The companies are Chevron Corporation (CVX), The Walt Disney Company (DIS), and Exelon Corporation (EXC).
Chevron is the world’s third largest integrated oil and gas company. A true mega cap. Vertical integration of upstream and downstream assets allows the company some insurance against commodity pricing. When the price of oil is low, the refining operations continue to produce cash flow. The company has also eliminated the cost of many middle men propping up margins. One of the most critical things for an oil and gas company is the rate at which it replenishes reserves. CVX is one of the best and has replaced over 100% of reserves over the past decade. Near the money puts such as CVX160520P00092500 were selling for 3.15 yesterday. That is 21.43% annualized over 58 days. The trade would also have 5.8% downside protection. If assigned, shares yield 4.63% versus a cost basis of 92.50.
The Walt Disney Company is an entertainment powerhouse. It has sales in movies, toys, music, video games, and amusement parks. It is also the majority owner of ABC and ESPN. Acquisitions of Pixar and Marvel Entertainment have worked out very well and the recent addition of Star Wars appears to be another winner. The company is very shareholder friendly, expending almost all free cash flow on dividends and share buybacks. A recent near the money put such as DIS160520P00095000 paid 2.34 yesterday. That is 15.5% annualized over 58 days. The trade would have 4.69% downside protection. Shares yield 1.49% against a cost basis of 95 if you are assigned.
Exelon Corporation operates the largest fleet of nuclear power plants in the United States. It is the most efficient operator in the space defined by having the lowest number of down days for maintenance. The company is very consistent and is immune to oil, gas, and coal pricing. It is shareholder friendly but maintains a safe payout ratio below 50%. Recent near the money puts such as EXC160520P00035000 were paying 1.25 yesterday. That is 22.48% annualized over 58 days. The trade has 4.42% downside protection. Shares yield 3.54% against a cost basis of 35 if assigned.
It is almost always possible to find good yields on written puts on safe companies. Collecting upfront premium lowers your risk versus buying the shares outright. Why would you invest any other way?
Devour your prey raptors!