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Sunday, November 24, 2024

Top Trades for Mon, 01 Mar 2021 11:44 – GILD

Here's one we forget is cheap, GILD.  $62.42 is just $78Bn and they broke even last year but make more like $5.5Bn in a normal year and are projecting much better than that this year and next (more like $8-9Bn), which makes them a real bargain.  Our LTP trade is still valid, of course:

GILD Short Put 2022 21-JAN 62.50 PUT [GILD @ $62.26 $0.71] -10 2/5/2020 (326) $-9,000 $9.00 $-0.88 $-9.60     $8.13 $-0.28 $875 9.7% $-8,125
GILD Long Call 2023 20-JAN 45.00 CALL [GILD @ $62.26 $0.71] 50 11/17/2020 (690) $86,000 $17.20 $1.10     $18.30 - $5,500 6.4% $91,500
GILD Short Call 2023 20-JAN 65.00 CALL [GILD @ $62.26 $0.71] -50 11/18/2020 (690) $-37,250 $7.45 $-0.23     $7.23 $-0.26 $1,125 3.0% $-36,125

That's net $47,250 on the $100,000 spread that's pretty much in the money.  We did an aggressive put sale at the time and I'd still do that.

As a new trade, I like:

  • Buy 1,000 Shares of GILD at $62.22 ($62,220)
  • Sell 10 GILD 2023 $55 calls for $12 ($12,000) 
  • Sell 10 GILD 2023 $60 puts for $10.50 ($10,500)

That's net $39,720 and you get called away at $55,000 if all goes well with a $15,280 profit (38.5%) plus $2,840 in dividends each year while you wait for another $5,680 (14.3%) so 52.8% profit in two years on a fairly conservative play and the worst-case is owning 2,000 shares at an average cost of $47.02 ($94,040 assuming the dividend continues).

To lay out less money:

  • Sell 10 GILD 2023 $60 puts for $10.50 ($10,500)
  • Buy 25 GILD 2023 $60 calls for $9.30 ($23,250) 
  • Sell 25 GILD 2023 $72.50 calls for $5.00 ($12,500)

That one is net $250 on the $31,250 spread so $31,000 (12,400%) of upside potential at $72.50 seems very reasonable and the worst case is owning 1,000 shares at net $60.025 - a bit less than it is now and then we flip to the ownership plan above.

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