PG has been on my Watchlist for quite a while - I actually owned some PG for a short while in late 2008 when I bought for $58.96 and sold for $61.60.
I've been invested in riskier stocks during the time since and have now decided to switch my strategy to a more conservative one.
Therefore, today, I bought 200 PG shares at $63.38 each.
I also sold 2 PG JUL10 65 Call Options at $1.56 each and 2 PG JUL10 65 Put Options at $3.81 each. After commissions, I took in a total of $1,070 in Premium.
This means that my total outlay today was ($63.38 * 200) - $1,070 = $11,606
If PG closes above $65 on Jul 16th, I will be forced to sell my shares at $65 each (a total of $13,000). I will also have collected $88 in dividends.
Therefore, my profit would be $13,088 - $11,606 = $1,482 (or 12.8% of initial outlay in 4.5 months for shares that would need to rise by 2.5%)
If PG closes below $65 on Jul 16th, I will be forced to buy another 200 shares at $65 each (a total of $13,000). I will also have collected $88 in dividends for my current shares. My basis per share would be ($11,606 + $13,000 - $88)/400 = $61.29 (or 3.3% below today's price).
Obviously, the best case scenario for me would be if PG closed at $65 exactly. This would allow me to re-write the Options for a future expiry date.
All this talk of what will P&G do in 3 months, 6 months, etc. Puts / Calls ... Who cares ? Ive been buying P&G every month since 1980. All this hand wringing over the short term is crazy. In the March 2000 drop off I just bought more. Im now pushing 4 mil value in shares (multiple splits)and with the next dividend increase have +$120M a year in dividends. Considering that should keep going up ~10% a year I dont miss much sleep. If P&G dropped 50% in share value tomorrow Id just buy more (dividend would not stop). So much for diversification ... oh wait .. Is owning P&G diversification in an of itself ? Just hit age 50 so considering the possibility of retirement around 60 Im not a complainer. And no my handle is not the real name ... Another thought ... since P&Gs prime directive is "Do the right thing" I wonder if this has any relation to results?
I think you've your calculations wrong. $4 mil value in shares pays a dividend of $112,000 per year (increasing towards $120,000 after the increase).
Also, the post of yours below seems to suggest that you, like me, are interested in the short term price movements of PG:
Well, after a little over three weeks, the shares are right back where I made the original trade.
However, three weeks is a drop in the ocean for this stock. The dividend announcement should in 2 weeks time and I'm expecting a rise to about 48c - 49c per quarter.
Assumming an increast to 48c and the Put Options remain in-the-money at July assignment, my dividend on my basis will be a little over 3.1%. Overall, I'm still very comfortable.
Although no gain has been made during the past three weeks on the shares, the time value is being sucked out of my short Options and the trade, when taken as a whole, is currently profitable.
Yeah, I'm very happy with the position. PG is due to increase it's dividend shortly. E
ven if it drops from here, I should have no problem reducing my average cost to $60 per share before the end of the year using a combination of Naked Puts and Covered Calls.
I expect the dividend to increase to about $0.48 per quarter this year which ain't to shabby for a stock like PG.
When I was moving my mother from Baltimore to be near me, I put enough money together with her to buy 200 shares in 1992.
When I retired, I did a quick calculation. My annual return over that period was just over 16%. That, I consider a hold position right now.
I'm happy with what I've done. We are in a current down market nationwide. I've pointed out a perceived weakness and I'm holding my position.
There is nothing wrong with your position here. However, I think that your risks are greater than mine.
With dividend reinvestment, I keep making more money each quarter.
Are you sure that you are in the right position here?
I agree that, in my opinion, it's undervalued by at least 10%.
I'm actually considering selling a couple of more Put Options for July expiry (but at a $60 strike price). However, I have to wait until after next week - because I am short alot of March Options and want to avoid any potential margin calls.
At the current bid of $1.65 for Jul10 60 Put Options, I'd receive an additional $330 in Premium.
Then, if PG did happen to drop below $60 come July expiration, my cost basis per share would be reduced to $60.86 per share for 600 shares.
I'd then need to evaluate what to do next. As an example, if PG was below (but close to) $60, I could, sell 6 Oct10 60 Covered Calls and 3 Oct10 60 Naked Puts. Obviously, this would depend on the Premiums available at that time.