Options Trade – Pfizer (PFE)

I still need some Healthcare in my portfolio – even with the current Merck trade, and Pfizer is very cheap – pulled the trigger last night. The stock has been getting a lot of bad press for the $160 billion deal to merge with Allergan it announced in November 2015, for example:

• The New Yorker – The Pfizer–Allergan Merger Is a Disgrace

But it is short term problems like this that create buying opportunities.

I sold 10 March Put Contracts (29 Strike) for PFE – to open a trade. *Premium Collected: $860.00

Here is my strategy breakdown on Pfizer

• Sold the puts with a large Margin of Safety built in – with the $850.00 premium collected, my effective MOS is almost 26%.
• If I get put the Pfizer shares – I will collect a Dividend in early May 2016 – $300.00
• I will immediately sell longer term Call Options to lower my Margin of Safety even more.

At every point in the process, I am getting paid to take on risk.  If I don’t get put the shares, I still have $850.00 for my trouble.  If I do get put the shares, I get paid a nice dividend a few weeks later and can sell more premium to continue the cash flow.

*Excludes transaction costs.