Monday, February 16, 2015

Stock Purchase (2): JNJ

On 02/12/15, I bought 20 shares JNJ at the average price $97.97. 

As reported before, I bought the first 20 shares JNJ on 01/30/15 with average price $100.5.

The new addition averaged down my purchase price to $99.44/share (net after commission fee deduction.) These 40 JNJ shares provide me $112 dividend annually, which is 2.82% yield on cost.  I felt good about it. and will add more shares if there is further stock price drop.

At the same time, I sold (1) Jan 2016 puts @ $85 on 02/06/15.

The premium is $2.91. So my annual return rate is 3.68% (after $6.10 commission net). If this put were excised upon expiration, my net cost per share would be $82.15.

I know I am very conservative at this puts writing, with such a low striking price and such a long expiration period. Considering the annual return rate is higher than JNJ's dividend yield return, and my idle cash has been put into good use to cover these puts, I am comfortable with my move.

A lot of fellow DGI investors have use puts writing as a strategy to generate extra income, and reading their articles is an elevating experience to me:-
 
Financial Velociraptor wrote an article to proof that Writing Options On Quality Companies At Fair Valuations Pays Well .

Average Dividend Yield uses puts writing as the way to buy quality dividend paying companies' stocks.

All about interest gave it a good point that selling puts against sold blue chip companies is a win-win.

Ong Kang Wei uses puts writing as a good strategy to put good use of his idle cash base.


How do you think about options?  Do you use puts writing as an alternative to buy quality stocks at your desired price?

Disclosure: Long JNJ.

4 comments:

  1. Good to be a fellow shareholder with you in JNJ. I'm certainly happy about picking up shares around the $100 mark, and will look to average down if given the opportunity.

    As for put writing, I plan on picking this back up later this year, and will likely sell naked puts on DG companies 3-15 months ahead of time. Pick up some income while locking in a cost basis I view as fair value.

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    1. Hi writing2reality, thanks for stop by. I am pretty happy with the JNJ purchase too.

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  2. Thanks for sharing your recent JNJ purchase. A solid buy all around that has been making the dividend blogging rounds in recent weeks. Like the put writing too. I still am not into options but would only consider covered calls or writing puts. I know it's written for a long time out but I'll be curious to see how the trade unfolds for you.

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    1. Hi DivHut,

      Thanks for the comment. Covered calls and writing puts are both good conservative strategies. I believe the key is still the company's sound fundamentals.

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