Home Articles Options Writer Series — New Rules Mean New Opportunities PFE

Options Writer Series — New Rules Mean New Opportunities PFE


warren3By Warren Kaplan

The Stock Option Writer

© Warren Kaplan 2011-2014

November 21, 2016

As everyone knows, the elections are over and the surprise is that Trump, the businessperson, will be our new President.  At long last, I expect to see the Keystone pipeline being built meaning 20,000 high paying jobs to be created and a steady 5,000 high paying jobs to maintain it.  Look at the companies that are involved in the Bakken oil fields. Transporting costs of the “black gold” will be substantially reduced and it will be a lot safer than moving crude by rail.  My favorite stock for a home run is Penn West (PWE). The company is a medium size Canadian oil and gas producer. The current book value is several times the current market price and the company has extremely small debt. The current stock price is around $1.65. Don’t let the price fool you. It is a real company. Check it out with your broker or investment advisor.

The stock market always gives you an opportunity to increase your wealth. You just need to know where to look.  So, this past week, Pfizer (PFE) came into a price range, which I consider a no brainer buy. Frankly, I do not know why the seller is selling. However, that said, the fundamentals are super for PFE. The 12-month range is $28.25-$37.39. Hence the ½ way point is $32.77. This past Friday, the closing stock price was $31.48. The current annual dividend is $1.20. Hence the annual yield is 3.81%. Here are some more important facts: The company has been raising its dividend every year since 2011. In 2010, it paid out $.54. In 2009, the long-term debt was $43,218MM. By December 31, 2015, the debt was reduced to $28,952MM.  I expect the Board will raise the common stock dividend to $.32 quarterly to be announced around December 14, 2016. . That would bring the annual dividend to $1.28 giving you a yield of 4.07%. For 2017.The company has a bunch of drugs in phase 3 testing. If these drugs pass muster, the FDA will be approving them. Cachink, cachink, cachink. Even now, I can hear the money pouring into the company.

You can write many different kinds of options on PFE. If you are bullish like me, depending on whether you are going to use PFE for a trading account or an investment account, you can start off by writing options that fit your picture.

For trading accounts, consider writing Nov 25th puts at $32.00 for $.60.  If by this Friday November 25th the stock is above $32.00, your annualized rate of return is 99.05%.  If you get assigned, you own the stock at $31.40. You can even write the $32.00 put option expiring December 16, 2016 and receive $.88 and IF you do NOT get assigned, you earned money at the annual rate of 48.89%. If you do get assigned, you own the stock at a cost of $31.12. Then you can sell a covered call at $31.50 or even $32.00 thereby taking in more premiums.

For a defensive trading account, you can write the December 16, 2016 put option at $31.00 (below the Friday close of $31.48) and take in $.40. Your potential annualized return is 22.37%.  It means that PFE stock price has to decline an additional 1.52% to get to $31.00. That date is around the same date that I expect PFE to announce an increase in the dividend.  If you get assigned at $31.00, your true cost is $30.60.

For an investment account that appreciates the current price of PFE and would not mind holding the stock for a long period of time, that account should consider writing the January 20, 2017 put at $33.00 for a premium of $1.85. IF the investment account gets assigned, the investor’s cost is $31.15. The beauty here is that the stock is expected to go ex-dividend Feb 3, 2017 for either $.30  (the current rate) or $.32 (the expected rate). What I would do in my investment accounts is then look to sell calls at for example $39.00 for approximately $.05 for 3 months. That is the current situation and IF the stock is higher priced than the current price, you should receive an even greater premium. I fully expect the Federal Reserve will raise interest rates in December 2016. This makes options more valuable as margin accounts will have to pay more interest. That will translate into greater premiums for writers, which we are.

Let me tell you a secret place I use for finding great stocks on which I love to write options on.  The author is Ben Reynolds of Houston, TX. .  His website is http://www.suredividend.com. I note that he too just wrote up Pfizer and he gives far more reasons than I do as to why the stock should be bought. I am more involved in how to buy into PFE.  You can buy his monthly service for $9. a month or $79 a year. Ben is very big on stocks that raise their dividend every year. You can write to him at ben@suredividend.com.

By the way, Carnival Cruise Lines (CCL) closed at $51.50 on November 18. 2016. My article is the one dated August 17, 2016; where I told everyone to write put options between $44 - $50, depending on a reader’s investment objectives.  That was around the time that a Wall Street analyst told everyone to sell the stock.  I knew he was dead wrong. My family owns a travel agency and we are seeing strong cruise demand and there is a shortage of cruise ships world wide. By the way, I note that I wrote up PFE as a terrific buy on November. 7th.  I strongly urge everyone who is on my mailing list to read the articles on Opportunist Magazine at www.opportunistmagazine.com.



warrenkaplanWarren 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.”

Additional disclosure: I am not a registered investment adviser and I do not give investment advice. Nothing in this article should be construed as investment advice. Investors are encouraged to do their own research and seek the advice of an investment professional before investing. Writing options is not for everyone.  This article was written for informational purposes only.