I’m back with more put writing ideas.

music selection:  “Tutti Frutti” — Little Richard

weigh-in:  217.0 +0.6 (really struggling lately)

My first big idea today is GlaxoSmithKline plc (GSK).  It is a current holding of mine with a covered call position open against the shares.  GSK is a world class pharmaceutical company.  It started as a pharmacy in 1715.  The company has stayed true to those roots and continues to be in segments other than prescription drugs such as toothpaste (Aquafresh) and anti-gas pills (Beano).  It is a somewhat unusual pharmaceutical company in that it uses a broad range of drugs instead of relying on a few blockbusters.  It pays a fat dividend (6.77%) and keeps R&D funding with its plump cash flows.

A recent near the money put, GSK160520P00039000, is paying 1.15 a contract.  That is 19.93% over 54 days.  That trade would also have 4.7% downside protection.  With the “downside” being owning a great business with a dividend yield over 6%, you can hardly lose writing puts here.

Also on the list today is Hormel Foods (HRL).  The company is so much more than just the maker of Spam.  The five primary business segments are grocery products, refrigerated products, Jeanie-O Turkey Store, specialty foods, and international foods.  The company operates in 40 countries making it a truly global brand.  Debt is low and covered by cash on hand.  The company pays a dividend and buys back its own shares.

A recent near the money put, HRL160520P00040000, is paying 70 cents a contract and yields 11.83% over 54 days.  The trade has 9.7% downside protection.

Last for today is Johnson & Johnson (JNJ).  This one is a global healthcare leader with both a pharmaceutical business and a robust consumer products segment, as well as a medical devices division.  There are more than 250 operating companies worldwide.  The company has steady cash flows and is aggressive about keeping R&D funded.  From 2008 to 2012, the company invested 37 billion into research.  The drug pipeline stays full and the company is not shy about buying promising new drugs from smaller competitors.

A recent near the money put, JNJ160520P00105000, is paying 1.50 a contract.  That yields 9.66% over 54 days and has 4.6% downside protection.  If assigned, you’ll enjoy a dividend yield over 2.5% with growth potential.

Devour your prey raptors!

Sharing is caring!

Twenty Four Blue Chip Put Writing Candidates – Part 4 of 8

Never miss another opportunity to devour prey!

4 thoughts on “Twenty Four Blue Chip Put Writing Candidates – Part 4 of 8

  • March 28, 2016 at 4:21 pm
    Permalink

    It is an inspiring way to see how you describe your put trades!

    I did a first attempt recently with a French/belgian energy company. The yield is not as big as on your trades. It is a first start. And also in the money now, below my safety margin. At this time, I consider getting assignment. Ex Dividend is early May.

    Reply
  • March 29, 2016 at 9:11 pm
    Permalink

    Hi Raptor,
    I was curious if you decide on an intrinsic value for the company, and then base where your buying in off that? and if so how are you coming up with what you value the company at?
    Thanks,

    Reply
    • March 29, 2016 at 10:25 pm
      Permalink

      Relaxednature,

      When I come up with an intrinsic value (always a range because it is ultimately a guess), I use Price to Free Cash Flow for most companies (net of cash if it is material, like with Big Cheap Tech names). For financial companies, insurance, REIT, etc, I use Price to Book Value. It’s a little fuzzy because multiples are higher across the board than long term averages because the interest rate is so low.

      When buying discounted bonds, you care little about valuation. Only whether there is collateral to cover you in bankruptcy.

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.