Friday, March 30, 2012

New Trade: Proctor & Gamble (PG) Naked Puts

Yesterday in a taxable account I entered into the following transaction:

03/29/2012    STO 2 PG July 21 2012 62.5 Puts @.88      164.47

Proctor & Gamble is a tried and true Dividend Champion. It was showing a bit of weakness yesterday trading at 66 and change so I pulled the trigger on this little trade. PG is set to raise it's dividend next quarter so the share price should be supported a bit by the increase in yield. As of now the yield is 3.1%. If put to us our yield on cost, with the raise, will exceed 3.6% which is well above the historical average. The maintenance requirement on this trade is ~$2000. If these puts expire worthless we will earn $164.47 in 114 days on $2000 of margin maintenance. This equates to an 8.2% return or 26.25% annual. At this price we should be able to roll out and down for a net credit so we have an exit strategy in place.

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