Here's one we forget is cheap, GILD. $62.42 is just $78Bn and they broke even last year but make more like $5.5Bn in a normal year and are projecting much better than that this year and next (more like $8-9Bn), which makes them a real bargain. Our LTP trade is still valid, of course:
| GILD Short Put | 2022 21-JAN 62.50 PUT [GILD @ $62.26 $0.71] | -10 | 2/5/2020 | (326) | $-9,000 | $9.00 | $-0.88 | $-9.60 | $8.13 | $-0.28 | $875 | 9.7% | $-8,125 | ||
| GILD Long Call | 2023 20-JAN 45.00 CALL [GILD @ $62.26 $0.71] | 50 | 11/17/2020 | (690) | $86,000 | $17.20 | $1.10 | $18.30 | – | $5,500 | 6.4% | $91,500 | |||
| GILD Short Call | 2023 20-JAN 65.00 CALL [GILD @ $62.26 $0.71] | -50 | 11/18/2020 | (690) | $-37,250 | $7.45 | $-0.23 | $7.23 | $-0.26 | $1,125 | 3.0% | $-36,125 |
That's net $47,250 on the $100,000 spread that's pretty much in the money. We did an aggressive put sale at the time and I'd still do that.
As a new trade, I like:
- Buy 1,000 Shares of GILD at $62.22 ($62,220)
- Sell 10 GILD 2023 $55 calls for $12 ($12,000)
- Sell 10 GILD 2023 $60 puts for $10.50 ($10,500)
That's net $39,720 and you get called away at $55,000 if all goes well with a $15,280 profit (38.5%) plus $2,840 in dividends each year while you wait for another $5,680 (14.3%) so 52.8% profit in two years on a fairly conservative play and the worst-case is owning 2,000 shares at an average cost of $47.02 ($94,040 assuming the dividend continues).
To lay out less money:
- Sell 10 GILD 2023 $60 puts for $10.50 ($10,500)
- Buy 25 GILD 2023 $60 calls for $9.30 ($23,250)
- Sell 25 GILD 2023 $72.50 calls for $5.00 ($12,500)
That one is net $250 on the $31,250 spread so $31,000 (12,400%) of upside potential at $72.50 seems very reasonable and the worst case is owning 1,000 shares at net $60.025 – a bit less than it is now and then we flip to the ownership plan above.
