Note: Selling naked calls – the option strategy recommended in this blog – is a risky strategy. In theory, your liability is unlimited should the stock surge above the strike price. Only sophisticated investors should take this trade.
Food company General Mills (GIS) – set to report earnings Tuesday morning before the open – is exactly the kind of stock I’ve been recommending for the current macro environment. But the stock has gone essentially straight up all year and is now expensive and due for a pullback.
GIS has great brands like Cheerios, Haagen Dazs and Yoplait but 21x FY23 EPS guidance is quite expensive for a food stock. When I see a chart like this in a bad market my sense is that it’s a crowded trade which means that anything less than a stellar report could lead to selling. This is just a short term call heading into earnings as – like I said in the first sentence – GIS is just the type of company to thrive in the current macro backdrop.
If you own the stock and don’t want to sell any you could sell covered calls ahead of earnings. Personally I don’t own the stock but sold a few GIS $90 Jan202023 Calls for 80 cents.