I have done well with PFE calls with 2 doubles in the past 2 years. I am now left with 150 PFE 01/18/14 25.0 Calls, which to me is "house money" that is riding hopefully on a trip with PFE common price going to $29.95 before year end.
When these 150 calls hopefully double, I would like to replace them with PFE 01/17/15 27.0 Calls which I hopefully will ride on a trip of PFE common going to $32.45 before 12/31/14.
If this all happens, then I will have most likely turned a small $15,000 investment into a six-figure profit during a time period when PFE common would have only essentially doubled.
Congratulations on your good timing with Pfizer options and your willingness to play it aggressively when the stock was clearly undervalued.
However, I now think that most of the easy money in Pfizer has now been made. In my opinion, these are the late innings for the super overall uptrend that has carried the stock from a $16.66 close on 8/8/11 to the close of $27.70 a week ago.
When the stock was in the high teens and earning $2.30 a share, the PE was down around 8. At the time, I thought that the company could grow earnings at about 8% a year including the positive effects of buybacks. However, with the company doing so much of its business in Europe and with European austerity being breater than I thought, it looks like 5% growth is about all that can be expected in the foreseeable future. But the stock is no longer selling for 8 times earnings but more like 12 times.
For my money, this just isn't the time to ramp up the leverage. The stock is currently fairly valued although I do expect it to get to overvalued territory in the very very low 30's. However, $32.50 or so by year-end 2014 is more than I envision given the fact that at such a price the stock would be selling at almost 14 times the 2014 earnings expectation. That's pretty rich for just a 5% earnings grower. Moreover, whereas the dividend yield was at times over 5% in 2011, at $30 a share it would still only be around 3.7% of the expected 2015 annual dividend payout of $1.12 a share.
As the stock price rises, so of course does the risk. Even in minimal bear markets or major corrections, this stock in the past has been fully capable of falling by 15 or 20%. If the stock gets to $30 or $31, just a 10% to 13% setback would take the stock down to $27 and essentially render your 27-strike options nearly worthless.
Don't allow that to happen to you. If you still like Pfizer here, stick with the 25-strike calls; that's plenty aggressive enough. I have a pretty high risk tolerance but even the 25's are too gutsy for me right now. In getting back in again, I'm moving from being long 13-strike calls to being long 15-strikes but that's about all of the leverage that I'm going to use at this advanced stage in the mega-rally of the last 18 months.
Keep in mind that on 5/31/11, PFE closed at $21.45. But just ten weeks later on 8/8/11, PFE had tumbled by over 22% to close at $16.66. Don't allow a bad market to wipe away all of your gains and possibly even more.