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Kraft Foods Inc.  
About The Company
Market Cap 54.2B
Revenue (FYR) $49.2B
EPS (TTM) $1.42
Shares Out. 1.7B
Book Value $20.50
Div/Share $1.16
Payout Ratio 82x
P/E 21.8x
Price/Sales (FYR) 1.1
P/Cash Flow (TTM) 13.8x
Profit Margin 5.07%
Debt To Capital 44.42%

Kraft Foods Inc is a profitable Food Processing company that trades on the NYSE. Kraft Foods Inc. (Kraft) is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. The Company has operations in more than 70 countries and sell the products in approximately 150 countries. The Company manages and operates, through three commercial units: Kraft Foods North America, Kraft Foods Europe and Kraft Foods Developing Markets. In Feb 2010, Kraft completed its acquisition of Cadbury.The brands of the Company span five consumer sectors: snacks, beverages, cheese, grocery and convenient meals.

 

 

 
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By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not access or use this site.
Nothing presented is financial advice, trading advice or recommendations. Everything presented is the author's ideas only. The author accepts no liability for its use including errors and omissions. You alone are solely responsible for your own investing and trading. There are considerable risks involved in implementing any investment strategies and losses can be large. Trade at your own risk.

 
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  KRAFT FOODS INC  (KFT) - 2010
ONGOING EVALUATION & TRADE
This is a non-retirement account. I am selling naked puts against the stock.
This trade started in October 2008 and by June 2010 I had made enough income to pay for 500 shares of Kraft. Rather than accept assignment I am continuing to sell naked puts until eventually assigned as Kraft remains in a tight trading range making the selling of options viable. The goal was to own shares of Kraft through other people's capital. This goal has been realized. The objective now is to add to that income until eventually assigned shares.
KRAFT TRADES BY YEARS
VIEW KFT-2011 TRADES
VIEW KFT-2010 TRADES
VIEW KFT-2009 TRADES
VIEW KFT-2008 TRADES
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Should you find my strategy and ongoing evaluation of this trade of value I hope you will consider a tip for the time I spend detailing out this trade. I have set up a Paypal account for those who would like to donate. Thank you in advance. Remember, nothing on my site is financial advice. They are just my ideas and opinions. Investing is risky and losses can be large. Trade at your own risk. Read the terms of use

 

 

YEAR 1: 2008 - Trade Commenced Oct 2008
Goal for 2008: 2% (2 months)
Strategy: Sell Naked Puts Until Assigned
 
Capital In Use At End Of 2008 13,000.00
Income Earned in 2008 (2 months) 785.25
Return On Capital in 2008 (2 months) 6%
   
YEAR 2: 2009
Goal for 2009: 12%
Strategy: Sell Naked Puts Until Assigned
 
Capital In Use At End Of 2009 25,500.00
Income Earned in 2009 5,265.50
Return On Capital For 2009 20.10%
   
YEAR 3: 2010
Goal for 2010: 12%
Strategy: Sell Naked Puts Until Assigned
BY JUNE 2010 NO MORE CAPITAL IS REQUIRED AS THE STRATEGY HAS SUCCEEDED AND ALL THE CAPITAL REQUIRED IS THAT OF OTHER PEOPLE'S MONEY
 
Capital In Use At End Of 2010 14,500.00
Income Earned in 2010 9901.50
Return On Capital For 2010 68.28%
TRADE COMMENCED Oct 6 2008
GOAL FOR 2010: 12%

ONGOING STRATEGY - SELLING NAKED PUTS UNTIL ASSIGNED

 

Jan 6 10 29.20 BTC 10 Naked Puts Feb 26 @ .06       19.50     (79.50) 5971.25
Jan 15 10 28.18 STO 10 Naked Puts Mar 28 @ .85 3.0     19.50     830.50 6801.75
Feb 10 10 28.65 Bought 2000 shares @ 28.65
COMMENTS: This is the great thing about having cash always available. I saw this opportunity in a short term trade and was able to take it because I have the cash available. I am planning on closing this trade by Friday Feb 19 when options expire.
      7.00   (57307.00)    
Feb 10 10 29.01 Sold 20 CC Feb 29 @ .60 3.3     32.00     1168.00 7969.75
Feb 19 10 29.00 BTC 20 CC Feb 29 @ .04
COMMENTS: This was to be just a short trade. It has only been a week and I had no intention of holding this position beyond today's option expiry. Rather than wait, I gave up the roughly 100.00 of possible earnings, to sell out now and take the profit I had hoped to make. For many investors, it may be worth it to wait for the options to expire. For me with the stock at 29.00 and the option at .04 to buy it back, it was an easy decision.
      19.50     (99.50) 7870.25
Feb 19 10 29.00 Sold 2000 shares @ 29.00       7.00 57993.00   686.00 8556.25
Feb 25 10 28.55 Sold 10 Naked Puts APR 27.00 @ .37
COMMENTS: The recent weakness in Kraft with today's selling is, I think a good opportunity to add to my put positions.
1.3     19.50     350.50 8906.75
Feb 26 10 28.40 Bought 1000 shares @ 28.40 -   1000   7.00   (28,407.00)    
Mar 3 2010 For the past three months Kraft has been stuck in a trading range a bit higher than the end of last year. This continues to provice a great opportunity to trade this stock as it holds to the 50 day moving average. On every pullback to the 50 day I purchase shares of the stock and on each rise sell the closest month's covered calls at the next available strike. For example, on Feb 10 I purchased at $28.65 and on the bounce higher sold the Feb 29 calls. On Feb 19, I closed the trade. Recently I again bought shares at 28.40 and on the next rise sold the Mar 29 calls. I hope to close this trade at around 29.00 again. This stock pays a hefty quarterly dividend of .29 cents. You can see from the above chart that I have been in the stock for some time and have had stellar returns. I would not chase this stock but stay at the 50 day moving average. You can see the support and resistance levels are in a tight band. I am holding naked puts at the 15 day support level (28.00) and between the 15 and 80 day support level at 27.00


 

Mar 2 10 29.10 Sold 10 CC Mar 29 @ .45 1.5     19.50     430.50 9337.25
Mar 12 2010 An idea for a bull call spread from a reader and my answer:

READER'S QUESTION: Hello;  I was thinking of using the same strategy that you use on XOM on Kraft. BULL CALL SPREAD I would (BTO) Long 20 Jan 12 Call and (STO) Short 31 Sep 10 Call. Your thoughts on this play please.

MY ANSWER
:  It all comes down to your objective, level of comfort and outlook on the stock. On March 5 2009 Kraft made a new low of 20.81. Thatís been the low for more than 10 years. Seems like you may have found a good strike. $30.00 doesnít seem unreasonable to me. Remember these are just my opinions. Nothing discussed is recommendations or financial advice. Investing can result in large losses and spreads can and often do end up with large losses. 

OUTCOME A) If the spread works in your favor:

My figures are based on Mar 12 2010 with Kraft trading at 29.39 I based this on 5 contracts  - no commission taken into account.  
Jan $20 call is trading at 9.45 ASK
Sep $30 call is trading at 1.12 BID

Original cost of Jan 2011 $20 calls  9.45 X 5 contracts =      (4725.00)
Exercise shares of Jan 2011 $20 calls  20 X 5 contracts =  (10000.00)
Exercise shares of Sep 2010 $30 calls 30 X 5 contracts =     15000.00
Income from STO Sep 2010 $30 calls 1.12 X 5 contracts-        560.00
Total profit = $835.00 
Based on original investment of $4725 - $835.00 profit = 17.67%  a nice return for this 6 month trade. If you want to go out to January with the STO $30.00 calls they are 1.47 bid which would bring the profit to $1010 or 21.3% for 10 months

6 months = 17.67% or 2.94% / month
10 months =  21.3% or 2.13%/month    
So the 6 month trade is better.

Summation: Just need $4165 (4725 less 560)  to invest; the all time low for Kraft was 21.80 in the past 10 years; You know up front your loss should the stock fall below your break even.  You cannot lose more than this'; You can always buy back the trade and roll forward into another year; If the stock moves up, you can close part of the trade - for example if you have 5 contracts you can exercise early; or buy the 5 Sep 30 calls back but close just 3 of the Jan 20 calls and try to gain more income from the rise in the stock Ė this can be risky though if the stock pulls back. You could easily move into a loss situation by trying this.

OUTCOME B) TRADE DOES NOT WORK OUT
Your break even is $28.33. Your total loss cannot exceed $4165.00 on this spread. You can always close early to try to reduce the cost. You can roll your positions into another year. As you have sold the Sept 30 calls, if by Sept the stock is not at 30, you still can do one more call sell into January to try to recoup any loss.

COMPARISON TO JUST BUYING THE SHARES 

If you bought 500 shares today at $29.39  (remember no commissions taken into account)

Cost 500 X 29.39 =  $14,695.00
Possible Dividends received -  (Mar, Jun, Sep, Dec)  - $580.00
STO 5 covered calls Sep 2010 $30.00 X 1.12 = $560.00

Total capital invested: - $13555.00
Break even = $27.11

Sell at $30.00 =  15,000.00
Profit = 1445.00 = 9.8%  (1445.00/14695.00) 

ADVANTAGES: Lower break-even at $27.11; If you qualify for the dividend tax credit (we have this in Canada, I donít know about the USA) most of the dividends will be taxed at a low rate; Should the stock pull back and not close above 30.00 by Sept 2010 you can continue to sell covered calls if you like;  While with every trade there is a break-even (27.11) , when you own the stock you can continue to sell calls against it even if it falls below your break-even allowing you to reduce your cost basis;  Kraft is a strong stock presently with a substantial dividend.

DISADVANTAGE: While you can sell covered calls repeatedly, even below your break-even, you may still have a larger loss than $4165.00. As well it could take years to recover if the stock fell to perhaps its low again at 21.80.

Mar 18 10 29.81 BTC 10 NP Apr 27 @ .05 (0.18)     19.50     (69.50) 9268.00
Mar 18 10 29.81 STO 10 NP Apr 29 @ .32 1.1     19.50     300.50 9568.50
Mar 19 10 29.63 Expiry: 10 CC Mar 29 exercised   0   20.00 28980.00 0.00 573.00 10141.50
Mar 19 10 29.63 Expiry: 10 NP Mar 28 expired                
Mar 22 10 29.70 STO 10 NP Apr 30 @ .79 2.6     19.50     790.00 10931.50
Apr 7 10 30.11 STO 20 NP May 30 @ .70 2.3     32.00     1368.00 12299.50
Apr 16 10 30.66 Expiry: 10 Naked Puts Apr 29 expired/ 10 NP Apr 30 expired                
Apr 27 10 29.90 STO 10 Calls Jun 29 @ 1.40 3.0     19.50     1380.50 13680.00
Apr 27 10 29.50 Bought 1000 shares @ 29.50 (This turns the Jun 29 into covered calls   1000   7.00 (29507.00) (29507.00)    
May 10 10 30.52 BTC 20 NP MAY 30 @ .28 (0.90)     32.00     (592.00) 13088.00
May 18 10 29.85 Bought 1000 shares @ 29.85       7.00 (29857.00)      
May 18 10 30.31 Sold 1000 shares @ 30.35       7.00 30343.00   486.00 13574.00
May 21 10 28.77 STO 5 NP JUN 28 @ .57 2.0     13.25     271.75 13845.75
May 21 10 28.77 Bought 1000 shares @ 28.77       7.00 (28777.00)      
May 21 10 29.50 Sold 1000 shares @ 29.50       7.00 29493.00   716.00 14561.00
May 25 10 28.02 STO 5 NP JUN 26 @ .32       13.25     146.75 14707.75
Jun 18 2010: ALL OUT! As of today the cost for 500 shares of Kraft will be covered by the earned income. All my positions are finished as of June expiry. My goodness, everything has worked out. Well, now, what to do next. The stock has had quite the busy few months, but getting over that 30 - 31 strike is tough. You can almost check the chart and sell puts on the pullbacks. That will be my continuing strategy on Kraft. I have now generated 14,180.75 in income. Enough to almost buy 500 shares. But the goal remains the same as does the objective, so I will wait for a bit of a pullback and restart selling naked puts.


 

Jun 18 10 30.01 Expiry: 10 Covered Calls Jun 29 exercised       20.00 28980.00 0.00 (527.00) 14180.75
Jun 18 10 30.01 Expiry: 5 Naked Puts Jun 28 and 5 NP JUN 26 expired                
Jun 23 10 29.20 Bought 1000 shares @ 29.20
Comments: I bought this for a quick bounce today)
      7.00 (29207.00)      
Jun 23 10 29.18 Sold 5 NP JUL 28 @ .58
 
2.0     13.25     276.75 14457.50
Jun 23 2010: MAKING INCOME ON MY INCOME: With over 14000 now earned I am selling naked puts at the 28.00 strike. With 5 contracts each time, I basically am using the income I have made to sell naked puts. This strategy costs me none of my own capital, just my income earned. So now I am making income on my income! How great is that? So the strategy now changes from selling lots of naked puts, to taking advantage of stock pullback to jump in, buy some stock and then jump out and sell it, all the while selling naked puts with my income earned as the only capital at risk.
Today is a good example. I bought stock on the morning sell off and I will sell it sometime during the day. Meanwhile I sold the August 28 naked put with my income earned.
Jun 23 10 29.60 Sold 1000 shares @ 29.60       7.00 29593.00 0.00 386.00 14843.50
Jul 17 10 28.81 Expiry: 5 NP JUL 28 expired                
Jul 29 10 28.90 STO 5 NP AUG 28 @ .30 1     13.25     136.75 14980.25
Aug 17 10 29.02 STO 5 NP SEP 28 @ .35 1.25     13.25     161.75 15142.00
Aug 20 10 29.10 Expiry: 5 NP AUG 28 expired                
Sep 14 10 31.03 STO 5 NP DEC 29 @ .59
Comments: I have sold now as I am confident my Sep 28 puts will expire this coming Friday. There is not real premium at the 28 level until out to Dec or Jan. I have now made enough income to cover 500 shares at $29.00, so I have sold the Dec 29.00
2.0     13.25     281.75 15423.75
Sep 17 10 31.35 Expiry: 5 naked Puts Sep 28 expired                
Nov 5 10 30.90 STO 5 NP JAN 29 @ .53 1.8     13.25     251.75 15675.50
Nov 5 2010: HAVE TO LOVE RANGE BOUND STOCKS: This past October marked the second year anniversary of this great trade. I have continued to add to my earnings while the stock goes nowhere. Imagine owning this stock for just the dividend, when instead with a little more education, an investor could sell puts and calls to more than double their return versus the dividend. The chart below tells it all. Range bound for most of 2010.

Dec 6 10 30.15 STO 5 Naked Puts Jan 30 @ .58 1.9%     13.25     276.75 15952.25
Dec 17 10 31.93 Expiry: 5 Naked Puts Dec 29 expired                
    END OF 2010 - EARNED $9901.50  68.28%                
KRAFT TRADES BY YEARS
VIEW KFT-2011 TRADES
VIEW KFT-2010 TRADES
VIEW KFT-2009 TRADES
VIEW KFT-2008 TRADES

 

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not use this site. The author of fullyinformed.com assumes no liability for topics and ideas discussed, errors and omissions, ads and their content and external links. Any corporate insignia used are registered trademarks of their respective company or corporation and are being used for identification purposes only. All material copyrighted by FullyInformed.com. Reproduction in whole or in part prohibited. Copyright © 2008

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