How I bought 100 shares of Clorox (CLX) at a $2,600 discount
Although Clorox has been on my watch list for years with a an amazing 44 year history of dividend increases, I never pulled the trigger on the stock for one reason or another. All that changed when Covid-19 hit and we were stocking up on their wipes, sprays and other cleaning products. As a result, CLX made its way on my buy list for 2021.
However, the stock has been on a downward trend in 2021 - down more than 18% since January and roughly 30% down from its high of $237++ in 2020. After news of the Omicrom variant hit, the stock went even lower and is currently at $163 at the time of this post (1 December 2021).
Despite all that, I managed to buy 100 shares of CLX at a cost basis of $144, even though the stock has not dropped below $160 this year. How? By selling options.
From 2 February 2021, I started selling cash secured puts on CLX every month, and received some cash in return. Selling a cash secured put simply means I’m promising to buy the stock at a certain price at a certain date, in return for some premium up front (just make sure you actually do have the cash to buy the shares).
For example, on 17 February, I sold a cash secured put for a CLX option expiring in March 2021, promising to buy 100 shares at $170 per share, and got paid $176 in premium to take on this risk. As long as the stock price remained above $170, I’d keep the premium and move on to the next trade.
I know the recent hype around meme stocks has led to options having a bit of a bad name, and no doubt many people who use options, use them for speculative purposes. For me though, as long as I have the cash in my account to fully purchase the shares, the risk is identical to owning the stock outright.
Fast forward 14 trades later, in September 2021, the stock was trading at $166, and I had to make good on my promise to buy 100 shares at $170 per share - a total of $17,000.
Whoa, isn’t that instantly a $400 loss?
Well, no. Over the course of the 14 trades, I managed to earn over $2,600 in option premium, which means the effective cost basis of my shares was $17,000 - $2,600 = $14,400. Or $144 per share. I could have turned around and sold the shares at the market price of $166, and still made a profit.
But selling isn’t part of the plan. I wanted to own these shares, but I didn’t want to just buy them at market prices. I wanted a discount!
Take a look at a screenshot of my current position after the market close on 31 November, it shows the current price of $163, and my trade price of just under $170. So I should be registering a $700 loss. Instead, my position is positive with $1,800++ in profit.
Compare this to buying the stock outright on 2 February (the day of my first option trade), when the stock was trading $204+, I’d be sitting on a $410 loss right now. That would be balanced out by the $464 annual dividend on 100 shares, but still comparatively worse off than entering at $144 per share.
For me and my portfolio, I’m happy to have finally established a long-term position in CLX at a discount - in fact I just received my first dividend payment of $116 in November, which was automatically reinvested to buy the 0.49 fractional shares you see in the screenshot.
I'm looking forward to that annual dividend compounding for years to come.