Johnson & Johnson

I'm slowly stacking my investment portfolio with strong companies that pay a reasonable dividend and have a history of growing that dividend. Johnson & Johnson (JNJ)

Reasons to hold

The dividend is currently around ~3%, but more importantly it's been growing steadily between 5%-7% each year. They First there is the dividend. Even if the stock goes nowhere, I stand to make a 3.61% return right now just from the dividend income. It's hardly going to make me rich, but it's certainly better than letting my money sit in the bank.

The trade

Unfortunately I don't have a spare $10k lying around, but I'm hoping I will by October. So I've purchased 1 call option for JNJ, expiring 19th October 2013 at a strike of $92.50. At the time I bought it a month or two ago (I've been a bit slack posting this update) it $1.54, but JNJ has since dropped and the same option last traded for $0.30. That means I paid $154 (1 option contract x 100 shares x $1.54 premium) to lock in a maximum price of $92.50 for JNJ.

I could purchase the same today for a total of $30, or I could chose to lock in a lower strike price.

Should we get to the 19th of October and the JNJ is still below $92.50 then my option will expire worthless, and I'll just pay whatever the lower market price is to buy the stock directly (currently $86.41).

Haha, you're losing!

It's easy to consider this trade a loser so far, but I plan to own JNJ for the long-haul and I'm willing to stomach some volatility in the interim. Had I had the funds available I would have purchased the stock weeks ago when it was around $92, and I would currently be sitting on a ~$600 loss. Instead I'm likely to lose $154 on my options trade, but I'll be buying to stock at a much cheaper price anyway. So either way it's a win.

Published on in Trades