PRU/Kustomz – I might warm up to insurance if rates rise. Insurance companies are forced to hold vast sums in reserves and they can only put them in BS investments like TBills so rising rates are fantastic for them. I haven't liked insurance because of added Covid costs but PRU doesn't do much health though they do life and, of course, Global Warming has not been kind to property/casualty. On the other hand, car insurance has been a huge money-maker with less driving the last two years.
$103 is $40Bn and, pre-covid, they were good for $4Bn and post they are expecting $4.5Bn so less than 10x. They lost $374M in 2020 but made $7.7Bn in 2021 so average $3.7Bn is barely dented during the crisis so yes, a great stock to have. They pay a $4.80 dividend and we have $172,000 cash in the Dividend Portfolio so why not add them?
- Buy 500 PRU at $102.71 ($51,355)
- Sell 5 PRU 2024 $100 calls for $17.50 ($8,750)
- Sell 5 PRU 2024 $80 puts for $10.75 ($5,375)
That's net $37,230 and, if called away at $100, it's a $12,770 (34%) profit plus 7 rounds of $600 dividend payments for $4,200 (11.2%) gives us 45.2% over 2 years, paying for almost half the position. Worst-case is being assigned 500 more at $80 ($40,000) to average $77.23, which is about 25% off the current price – that's not a bad worst case.
