A Chance to Outbuy Warren Buffett !
Every quarter, I review what Berkshire Hathaway has just bought, in hopes of finding some investing ideas (to further explore). Unfortunately, by the time EDGAR reports what Berkshire's purchased for the prior quarter, the price has already moved upward dramatically (proving Buffett knows what he's doing!). Back in Q3 of 2011 he invested in Sanofi, a French pharmaceutical manufacturer who trades through ADRs on the NYSE (symbol SNY). I liked the fundamentals of the company, and read Warren's analysis for buying this one in Mary Buffett's new book The Warren Buffett Stock Portfolio. I've been following SNY, ready to pounce if the price became favorable (i.e. buying it for substantially less than Warren Buffett paid!).
The stock dropped today for the second straight day, so it seemed right to pull the trigger. With the price at $36.95 (Berkshire paid approx $39.50 per share), I decided to try for a deeper discount. I sold May 19 $38 puts for $2.73 per contract. If Sanofi stays under $38 per share, I get it for a net of $35.27 per share. If it goes back up over $38, I don't get the stock, but I get a return of 7.16% for committing my funds for 44 days -- an annualized return of 59.43% !!! With the $2.73 premium in my pocket, I can "afford" to pay up to $39.68 after May 19, and still get it at today's price . . .
Not a bad deal either way!