KO has been very nice to me so far. Remember, back on 8/18 I sold a SEP 67.50 Naked Put for a $1.21 credit. I really didn’t care if I was ‘put’ the stock if it was below 67.50 at expiration because I didn’t mind owning it. It’s a good company, known world-wide, seems to be recession proof and pays a very nice dividend.
Speaking of the dividend, looks like I missed the ExDiv date (9/13) because I didn’t own the stock on that date, so I miss out on the $0.43/share that it will pay. Good news or bad?
Let’s see, I collected $1.21 credit on 8/18 and today I rolled the SEP 67.50 to the OCT 67.50 for another $1.40 credit – for a total credit of $2.61 over two months. That $0.43 dividend is payed every quarter. On an annual basis, the dividend pays $1.72 ($172 based on 100 shares), but selling Naked Puts at an average of $1.30/month comes out to $15.60 ($1,560) per year. Quite a difference.
Of course, depending on your income tax rate, you could be paying 0% to 15% on the dividend; the credits on the Naked Puts would be taxed at your ordinary income rate, but still…
Look at the KO chart below, I have marked the strike price for both Naked Puts, the credit collected for each and the current Cost Basis for the stock. Right now, the current Cost Basis ($64.89) is right around where the price was at the beginning of this year.
KO chart showing previous and current cost basis (click to enlarge)
I could say a lot more about the advantages and disadvantages of this option strategy and I’m sure you can too. Point is, not all trades work out an you can’t expect them to, but these days hanging in there with a good stock is a high probability strategy for a conservative investor.
