On 9.20, my SJM covered call options expired with the underlying share price below the option strike price, so I kept the shares. Subsequently, on 9.27, I sold 4, 120 strike Calls with an 11.15 expiration against my SJM position for $4.80 each. That netted me a total premium of $1,920 (4 x 100 x $4.80). A 120 strike is lower than the 125 strike calls I’ve been selling previously. The stock, which closed at 121.15 on 9.27, has flirted with 120 in the last several months but hasn’t been able to hold for long above that level since March. Will it close above 120 on 11.15? Who knows?
For pressure to the downside, the underlying business fundamentals have deteriorated a bit over the last few months, namely with difficulty integrating the Hostess acquisition. Also, coffee commodity costs have run up, sky high. Revenue and earnings projections have declined.
For pressure to the upside, the Fed rate cut and pending/expected rate cuts make Smucker’s dividend, currently at a 3.6% yield, more competitive with the 10 Year Bond, which currently yields 3.75%. Furthermore, the rate cut(s) will lower the cost of capital, which will help Smucker restructure its considerable debt load.
Also of note: Smucker doesn’t release earnings until early December. Accordingly, my planned holding period for the Shares/Calls through 11.15 won’t be subject to earnings volatility.
The 120 strike netted me a much higher premium than my usual 125 strike: $4.80 v. apx $2.25 this time around. The “price” of that higher premium is that my upside is capped at 120 instead of 125, and there is a greater chance of my shares being called away. I’m okay with all of that. I guess that means I don’t care about my SJM shares as much as I do my BRK-B shares, which I strongly prefer not to be called away (so far so good on that front).
We’ll see what happens!
Game history, here.
Keep on Keepin’ On,
P. Gustav Mueller, author of The Present