It’s no secret that the German discounters — Aldi and Lidl — have been eating a bigger slice of the UK’s grocery pie for a while now. But that doesn’t mean that the old guard are just going to roll over and take it. Are Tesco shares now a bad investment?
Of course not, the UK retail market wars are just heating up.
Asda and Sainsburys tried to merge, Morrisons is working with Amazon, and Marks & Spencer have launched a new joint venture with Ocado. And the biggest of the lot — Tesco — has undergone a major self-help improvement programme.
CEO Dave Lewis, has introduced new product ranges, competitive pricing, and better customer service. He is also responsible for the acquisition of wholesaler Booker. At its current price of around 238p per share, many folks consider Tesco shares a good buy.
Their forecast dividend is an okay 3.5% and it’s covered 2X by earnings, which is at the safer end of the spectrum. Tesco shares also have a consensus analyst price target 15% higher than where they currently trading. Now that doesn’t guarantee anything of course, but it’s still reassuring.
But of course, as a big fan of stock options, I would never pay full price for the shares.
I’d rather pick them up at 235p and earn 6p for the privilege. That would give me an effective purchase price of 229p per share, not the current 238p. Nice.
And yesterday, I could have done exactly that.
I could have sold 4 put option contracts that would trigger if the price of Tesco shares fell below 235p by the close of play on 20th September. And the buyer of those contracts would have paid me £233 after commissions. With 64 days to run, that equates to an annualised yield of 14.1%.
Slightly better than your average clip-out shopping voucher.
In return for that lovely non-refundable payment, I would commit to buy 4,000 Tesco shares for a grand total of £9,447 (including the stamp duty) if the share price was below the 235p trigger point on the expiration date.
And if it stays above that level, then my commitment will expire, and I’d get to keep the £233.
That sounds like a win-win situation to me.
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