Guest JoelS Posted March 12, 2014 Share Posted March 12, 2014 Intrigued by David Winters' investment here, http://www.gurufocus.com/news/250785/david-winters-comments-on-nestle-sa "With sentiment on Nestlé so poor, we saw a rare opportunity to initiate a position in long-dated call options on Nestlé shares at what we believe to be a very reasonable price. These options give the Fund the right, but not the obligation, to purchase Nestlé shares at any time before December 2017 at share prices of 60 and 68 Swiss Francs per share, not far from the 66.15 Swiss Francs per share where they finished trading in 2013. If Nestlé shares have even modest price appreciation by 2017, the Fund stands to reap a handsome return on the call options. Although these options carry more risk than simply owning the underlying shares, we believe the risk/reward equation is firmly in our favor in this case." - has anyone on the board bought Nestle call options? If so, which did you buy? Are the options still attractive? Link to comment Share on other sites More sharing options...
claphands22 Posted March 12, 2014 Share Posted March 12, 2014 The call options do seem cheap. I'm looking at Interactve and December 21 2018 call options at a 68 strike price go for 5.60. Nestle is at 65.60 today. Could be interesting, thanks. Link to comment Share on other sites More sharing options...
karthikpm Posted March 12, 2014 Share Posted March 12, 2014 I think Nestle is such a wonderful business that I just own the equity and collect the dividend while waiting for the upside. Call options are predicated on the business reaching a certain price at a certain time. That may not happen as easily as Winter's expects . The emerging markets may not provide the upside immediately given currency issues and slowing EMs As Buffett says " “Time is the friend of the wonderful business, the enemy of the mediocre.”. I am happy owning Nestle for a really long time Link to comment Share on other sites More sharing options...
Vish_ram Posted March 12, 2014 Share Posted March 12, 2014 The call options do seem cheap. I'm looking at Interactve and December 21 2018 call options at a 68 strike price go for 5.60. Nestle is at 65.60 today. Could be interesting, thanks. The value of the call option gets reduced by the amount of the dividend. Nestle pays a high div. Link to comment Share on other sites More sharing options...
plato1976 Posted March 13, 2014 Share Posted March 13, 2014 I have some difficulty to understand why ppl call Nestle stock as cheap now I think Nestle is such a wonderful business that I just own the equity and collect the dividend while waiting for the upside. Call options are predicated on the business reaching a certain price at a certain time. That may not happen as easily as Winter's expects . The emerging markets may not provide the upside immediately given currency issues and slowing EMs As Buffett says " “Time is the friend of the wonderful business, the enemy of the mediocre.”. I am happy owning Nestle for a really long time Link to comment Share on other sites More sharing options...
moody202 Posted March 13, 2014 Share Posted March 13, 2014 The call options do seem cheap. I'm looking at Interactve and December 21 2018 call options at a 68 strike price go for 5.60. Nestle is at 65.60 today. Could be interesting, thanks. The value of the call option gets reduced by the amount of the dividend. Nestle pays a high div. I don't understand how this works. Do you have articles you can refer me to? Link to comment Share on other sites More sharing options...
LC Posted March 13, 2014 Share Posted March 13, 2014 I believe he is referring to the fact that the stock price should be reduced upon paying a dividend, and because the value of the call option is derived from the stock price, the dividend payment reduces the value of the call. However isn't this usually "priced in" to the premium of the call? Link to comment Share on other sites More sharing options...
Vish_ram Posted March 13, 2014 Share Posted March 13, 2014 The call options do seem cheap. I'm looking at Interactve and December 21 2018 call options at a 68 strike price go for 5.60. Nestle is at 65.60 today. Could be interesting, thanks. The value of the call option gets reduced by the amount of the dividend. Nestle pays a high div. I don't understand how this works. Do you have articles you can refer me to? http://www.putcallparity.net/put-call-parity-of-european-options-with-dividends call = stock + put - dividend - X (capital needed to exercise the option, adj for rates) Link to comment Share on other sites More sharing options...
Ross812 Posted March 13, 2014 Share Posted March 13, 2014 Nestle is a great company I've never bought any though because I thought the withholding tax was 35% and you cannot claim the tax within an IRA. I just looked back and a SA article I read said the tax rate was 15 or 35%. Which is it for US investors? Link to comment Share on other sites More sharing options...
plato1976 Posted March 13, 2014 Share Posted March 13, 2014 I think ADR dividend can be qualified dividend - so it's more like 15% If they withhold your div tax I think you can claim it back if it's in a taxable account Not sure how though Nestle is a great company I've never bought any though because I thought the withholding tax was 35% and you cannot claim the tax within an IRA. I just looked back and a SA article I read said the tax rate was 15 or 35%. Which is it for US investors? Link to comment Share on other sites More sharing options...
siddharth18 Posted March 13, 2014 Share Posted March 13, 2014 Is there a write-up available somewhere about Nestle? There is one on VIC but it's 5 years old. Link to comment Share on other sites More sharing options...
plato1976 Posted March 13, 2014 Share Posted March 13, 2014 I searched around and didn't find one appreciate if anyone can post one I don't feel this is really cheap - it's actually at the higher side of valuation against its peers but maybe it's worth the premium Is there a write-up available somewhere about Nestle? There is one on VIC but it's 5 years old. Link to comment Share on other sites More sharing options...
dpetrescu Posted March 14, 2014 Share Posted March 14, 2014 That cannot be right, it would mean an implied volatility (aka call price) of 15%. I would be interested in seeing a write up to see if it's worth investigating in detail. -------------------------------------------------------------------------------------------------------- The call options do seem cheap. I'm looking at Interactve and December 21 2018 call options at a 68 strike price go for 5.60. Nestle is at 65.60 today. Could be interesting, thanks. Link to comment Share on other sites More sharing options...
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