Trade Alert: Snack Time
What’s in It for You?
Global snacking giant Mondelez International (NSDQ: MDLZ) is all about bringing moments of joy to consumers with classic brands ranging from Oreo to Cadbury.
Shares of the former Kraft company have mostly tread water over the past three years, as management has worked to expand margins by cutting costs and reinventing the supply chain, while also adapting to rapidly evolving consumer tastes.
Mondelez is forecast to grow adjusted earnings per share in the high-single digits to low-double digits over the next several years, along with a return to modest revenue growth.
This trade will generate immediate income of $63 per contract now, with the possibility of buying the snack maker at an 8.2% discount to where it currently trades if the stock gets put to you. Investors should set aside $3,800 per contract sold to buy the stock in case the option expires in the money.
Regardless of how many contracts you sell, it’s absolutely critical that you follow the instructions below, particularly when it comes to setting the limit order.
How to Make the Trade:
- Trade: Sell to open the June 15, 2018, $38 Put on MDLZ.
- Allocation: Sell one put for every 100 shares you would be pleased to buy at $38 per share.
- Current Stock Price: $41.42
- Limit Order Price: a credit of $0.63 or more.
- Tell your broker: “I want to sell a put on Mondelez International (NSDQ: MDLZ) stock. Specifically, I want to ‘sell to open’ one June $38 Put for a credit of $0.63 per share or more.”
- Further Instructions Regarding the Trade:
- If the option price changes, you can adjust our recommended limit based on the midpoint of the bid/ask spread, which you should be able to see when entering the trade. Just make sure the potential credit is at least $0.63 per share or more.
- Place your limit order on a “good ‘til canceled” (GTC) basis and be patient.
The Win-Win Situation:
For every put contract you sell, you will collect $63 that’s yours to keep no matter what happens in the future.
If the put expires worthless, meaning the stock price is above $38 per share at expiration, then we’ll do another trade to create another instant payment.
If the stock is trading at or below the strike price upon the contract’s expiration, then you’ll be buying this solid snack maker at an 8.2% discount to the current market price, while locking in a yield of 2.3%—plus the premium you pocketed when you sold the put.
Then we’ll collect the dividend while creating more instant payments by selling covered calls against the stock.