GIS/Lance - Nice, boring stock and pays a 3% dividend, which keeps them from running away to the upside. To me, they are running hot at 25x earnings so I'd aim a bit more conservative and sell the $60 puts and calls for $4.20 against the $6.85 long position and, even better, earnings will be after the June expiration!
That's so good we should add it to the Butterfly Portfolio:
- Buy 10 GIS 2018 $67.50 calls for $3.10 ($3,100)
- Buy 10 GIS 2018 $55 puts for $3.75 ($3,750)
- Sell 10 GIS June $60 puts for $1 ($1,000)
- Sell 10 GIS June $60 calls for $3.20 ($3,200)
That's net just $2,650 out of pocket and not much margin since we're all covered and figure you long $6,850 is all premium so assume you decay 1/6 of it each quarter so it costs you $1,500 to be in the position but we're selling $4,200 of puts and calls that are $2,100 in the money at the moment. Anything over $1,500 we net back on the short sale in June will essentially be our profit and, of course, we're only going to roll the losing side to a Sept put and call combination so unless GIS is more than $4 above or below $60 - we should be in good shape.
That's our worst case but, if we nail just one out of our 6 quarters right on the money with our bet - that's a $4,000 payday!
