By Warren Kaplan
The Stock Option Writer
© Warren Kaplan 2011-2012
February 15, 2012
Maybe you saw the movie with Matt Damon. This company is a behemoth company that is huge in the food business. Come what may seven billion people are on the planet and they must eat.
Archer-Daniels-Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. (from Yahoo). Sales exceed $80 billion. The company makes profits year after year and shareholders have been getting rising dividends year after year. In 2002, the dividend was $.20. It has gone up every year and for 1012, the dividend is $.70, $17.5 quarterly.
All that said, you should check with your money manager or advisor and see if the stock is appropriate for you at this time.
The current stock price is $30.97. It sports a P: E of 13.67 and a dividend yield of 2.3%. The yield exceeds what you can get from a money fund but there are ways to enhance your return.
You could sell the June 16, 2012 call (covered) with a strike price of $39 for an additional $.07. The stock goes ex-dividend again in May so you will pick up another $.175. You have to ask yourself, if you bought the stock at say $31, would you be willing to sell the stock at $39 and make a $8 profit on your nearly $31 investment in just 4-months? The profit represents a gain of 25.81% so he annualized profit would be 77.42%. The $.07 premium you receive, adds only 21¢ annually if all things stay unchanged. This increases your annual yield rate to 2.94%. The goal of $39.00 is higher than ADM has reached in the past 12-months. The 12-month high being $38.02. Another idea is to stay with the stock a bit longer and sell the September 22, 2012 call at $40 and receive $.20 a share. You would garner another $.35 in dividends and the 9-point gain garners you a profit of 29.03% in 7-months and 49.77% annualized return.
Another approach is to sell the Sept. 22, 2012 put at $31 and take in a premium of $2.75 and the $30 put brings $2.30. Those premiums far exceed the dividends and the $30 price has a very small measure of protection from the current price while the $31 put is a much more aggressive stance as you are getting paid for the difference of the market price vs., the strike price. If you get put, your cost is reduced by the premium you received. That raises your yield based on the current dividend. The put at $31 les the premium of $2.75 gives you a cost of $28.25 and the $.70 dividend gives you a yield of 2.48%. The $30 put, if assigned, gives you a cost of $27.70 for a yield of 2.53%. Keep in mind that this is only a 7-month operation.
Go out one year, January 19, 2013 (actually only 11 more months) and you can get $.60 for the $40 call as well as $.525 in dividends. The potential 9-point profit can yield you an additional 29.03% profit. The total gain with the premium you would receive, the dividends and the profit would give you an additional $10.125 for a gain of 32.66% in 11 months. That package might fit nicely in your tax deferred 401K or IRA.
Warren Kaplan has been writing options for 50 years. He has been a stockbroker, investment banker and brokerage owner. He currently owns and operates Kaplan Asset Management, a provider of financial assistance for small to middle market businesses. He has more than a half-century of experience in dealing with financial markets, giving guidance and consulting with management, and assisting in the development of business strategies and solutions. The Company has assisted and consulted many successful companies, such as Natures Bounty (NBTY) and Action Products International (APII), helping them to go public and trade on the NASDAQ stock exchange. His philosophy is to “do something with the profits.” “If you make $100 in the stock market, take 50 percent and invest it back into the market. Then, take the other 50 percent and buy yourself something.”
Reader’s comments are welcome. Please do not consider these opinions as advice and we take no responsibility for any trades made. You should review these option writing ideas with your financial advisor so that you are properly guided. Writing options is not for everyone. If you want information about a certain stock, please email corp@opportunistmagazine.com.
