Selling Puts for Added Income
Today I'll be looking at Medtronic. Medtronic's current price is $38.70 and is a Dividend Aristocrat with 34 consectutive years of raising their dividend. The lowest of their 1, 3, 5 and 10 year dividend growth rates is 8.7% with the highest at 17.8%. The most recent payout ratio is 30.50% with a current yield of 2.50%.
If you're looking for more downside protection and therefore less of a chance of being put the shares then I like the #37 put since you get 4.59% of downside til the option could possibly be exercised and a total of 5.99% of downside before you would lose money on the move. That while still providing an adequate return for the approximate 2 month holding period.
The $39 put would be intriguing to me if I had the money to make the move. The put would currently be in the money meaning it could be exercised right away; however, you still have 2.79% of downside protection before you would lose money on the move. As long as the shares don't trade less than $37.62 if worked out for you. I think based on the return possibilities for a fairly steady stock that it would probably be the option I would look to make a move on since you would get a better dividend yield over buying outright.
I would normally try and get further downside protection but this is a shorter term option than some of the previous ones that I've looked at.
| Strike Price | Option Price | Cost Basis if exercised | Total Return if Expires | CAGR if Expires | YOC if exercised |
|---|---|---|---|---|---|
| $37.00 | $0.62 | $36.38 | 1.08% | 7.69% | 2.66% |
| $38.00 | $0.93 | $37.07 | 1.66% | 12.04% | 2.61% |
| $39.00 | $1.38 | $37.62 | 2.49% | 18.44% | 2.57% |
If you're looking for more downside protection and therefore less of a chance of being put the shares then I like the #37 put since you get 4.59% of downside til the option could possibly be exercised and a total of 5.99% of downside before you would lose money on the move. That while still providing an adequate return for the approximate 2 month holding period.
The $39 put would be intriguing to me if I had the money to make the move. The put would currently be in the money meaning it could be exercised right away; however, you still have 2.79% of downside protection before you would lose money on the move. As long as the shares don't trade less than $37.62 if worked out for you. I think based on the return possibilities for a fairly steady stock that it would probably be the option I would look to make a move on since you would get a better dividend yield over buying outright.
I would normally try and get further downside protection but this is a shorter term option than some of the previous ones that I've looked at.
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