August 12, 2016  Trade Alert  -   JNJ Jamboree  Portfolio

We are in sort of a pickle here.  Next Friday, a dividend of $.80 will be payable to shareholders.  Since the stock is expected to fall by that amount on that day, there is very little premium in the calls.  Furthermore, being short an in-the-money call on that day may well result in an assignment.  We would have to trade out of such short calls on Thursday.  We will use our spare cash to add on a put spread so we can collect more time premium when dividend time rolls around. We will wait until next week to sell new calls against today’s out-of-the-money expiring calls in hopes that the stock might trade higher when people would like to capture that dividend.  These trades will get us set up for next week:

 

BTC 4 JNJ 12Aug16 123 calls (JNJ160812C123)

STO 4 JNJ 19Aug16 123 calls (JNJ160819C123) for a credit of $.40  (selling a calendar)

 

BTO 1 JNJ 20Jan17 125 put (JNJ170120P125)
STO 1 JNJ 19Aug16 123 put (JNJ160819P123) for a debit of $5.13  (buying a diagonal)

 

Be prepared to change these price limits by $.05 or more in order to get an execution.

 
Happy trading.

 

Terry