One of our Members, Snow, was asking in our Live Member Chat Room about what could be a better place to put $433,000 (insurance settlement) than a 4.25% CD ($18,402/year) and here is my suggestion:
Well, a CD will pay you 4.25% at the moment, maybe a bit more for $433,000. That's $18,402.
Of course I would play a diversified batch of stocks, not just T but:
T is $22.58 - still relatively cheap but not a no-brainer. They pay a $1.21 dividend (4.93%) and you can do the following fairly conservative play:
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- Buy 10,000 shares of T for $22.58 ($225,800)
- Sell 100 2027 $20 calls for $4.25 ($42,500)
- Sell 100 2027 $20 puts for $1.80 ($18,000)
That's net $165,000 on the $200,000 spread so you make $35,000 (21.2%) at $20 AND collect $12,100 (7.3%) per year in dividends as well so 17.9% per year vs 4.25% seems worth the risk of owning 20,000 shares of T at net $18.25.
On a riskier note, KHC is stupidly cheap (10x) at the moment and they pay $1.60 (5.5%) per $29.08 share but, in this case, I don't see the point in buying the stock because you can do this:
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- Sell 100 KHC 2027 $27.50 puts for $3.20 ($32,000)
- Buy 200 KHC 2027 $22.50 calls at $7.30 ($146,000)
- Sell 175 KHC 2027 $27.50 calls for $4.10 ($71,750)
- Sell 40 KHC April $30 calls for 0.85 ($3,400)
- Sell 20 KHC April $27.50 puts for 0.70 ($1,400)
That's net $37,450 on the $100,000 spread with $62,550 (167%) upside potential at $27.50 PLUS you have 7 more chances to sell $4,800 in premium ($33,600) so that's almost $100,000 potential on the spread vs the original $18,402 (but it's 2 years vs 1 year) and the worst-case is owning 10,000 shares ($275,000).
