I’m reporting an options trade from this week for TEVA. I’ve already bought and closed one previous TEVA put for a profit of $203.
TEVA’s CEO resigned yesterday and this is why the stock is down big. I decided to take advantage of this and sell a put. I may also add to my position next Tuesday if the stock stays depressed.
What I like about TEVA:
1.) They are the largest generic drug manufacturer in the world and this business isn’t going anywhere.
2.) They have increased their dividend every year for 13 straight years right through the Great Recession.
3.) They have announced a 2-billion dollar cost savings program by 2017
4.) They have a 5-Year CAGR of 21.8% (Although most recent raise was 15% it’s still respectible)
5.) At current prices TEVA is yielding 3.25%
What I don’t like:
1.) They are losing patent protection on their blockbuster drug, Copaxone.
2.) Their CEO resigned and it’s unsure who will be running the company
3.) They slightly narrowed their outlook for 2013
4.) The stock has been depressed the last 5 years, with a high of over $60 to current prices
5.) TEVA is based in Israel and there is a 15% withholding tax on dividends
The trade:
I Sold 1 TEVA June 21 ’14 $37.5 Put @ 3.00
This trade could turn out a few ways:
1) I hold shares until expiration and shares are trading above $37.50. I will get to keep the $300 in options premiums.
2) I hold shares until expiration and shares are trading below $37.50. I will get assigned 100 shares of TEVA at a cost of $34.50/share. This is a discount of almost 7% from where the stock is currently trading and a 10% discount to my cost basis of $38.26.
3) Shares of TEVA go on a run and I decide to buy back the put early for a profit less than $300.
I currently have 9 open options positions and a total options profit of $4149 for 2013. My options page has been updated accordingly.
AAI,
Interesting pickup here. I think you’ll do well because shares look pretty cheap here on a forward P/E basis. I remember looking at TEVA a couple years ago when Chuck C. over at SA wrote about the great valuation, and they were about $40/share back then. The yield was too low, however. But that great dividend growth has now put them in a spot where the dividend is quite competitive. I’m a bit concerned about the declining earnings over the last few years, but FCF has been pretty strong. Very interesting. I’ll have to take a deeper look.
Best wishes!
Hi DM,
They do seem to present a good value and I believe a lot of the negative factors are already figured into the price. I’m happy to collect a rising dividend though while I wait for things to improve.
Thanks for stopping by to share your input
This is quite good premium and I believe you have a plenty of time to let the stock move up. I was torn between selling short puts or long term puts, but I think long term puts with a good quality stock your odds are better that the stock will grow. I like the trade and the tip for a stock I might put on my list for potential put selling candidates. Good luck!
Hi Martin,
I’m happy to point out the company to you. As you know, I like the company at these prices and will probably start adding a little more while the price stays low.
Take care!