This article originally appeared Jan. 27, 2014, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE -- Click Here NOW.
Whether you are a short-term trader or a buy-and-hold type, your true time horizon is "the rest of your life." The goal is to make enough money to achieve financial freedom.
Identifying great companies is important. Getting into them only at the right price is equally critical.
The athletic apparel company Nike (NKE) has been a real wealth creator for long-term holders.
Earnings per share were $0.69 (split-adjusted) in fiscal year 2003. That year's dividend rate was $0.14. Fiscal year 2013 (ended May 31, 2013) came in 289.5% higher at $2.69. The annual payout rose by 414% over that same decade.
Nike's 10-year total return as of Jan. 24, 2014, was 325%, even after Nike's recent retreat from its all-time peak of $80.26 to $71.65. Its Value Line metrics couldn't be much better.
Why not simply buy Nike shares?
Nike is still a bit expensive at 24x projected EPS of $2.99 for the fiscal year ending May 31. Nike trades for 20.5x the fiscal year 2015 projection of $3.50. Both are above Nike's 10-year median multiple of 18x.
At the Jan. 24, 2014, closing quote, Nike's current yield of 1.17% remains below the company's 1.42% average payout since 2003. The firm's great fundamentals and the index buying that occurred in 2013 when Nike was added to the Dow Jones Industrial Average sent the stock to very overvalued territory.
Those who would like to own the shares might want to sell some Jan 2105 or 2016 $70 strike-price puts. Last week's final bids on those were $5.90 and $9.85 per share respectively. That would lower the entry price to either $64.10 or $60.15, if eventually exercised.
By the time you're reading this, put premiums could be even better if last week's downturn worsens.
Writing the two-year LEAPs (long-term equity anticipation securities) offers the chance to pocket almost $1,000 per contract while committing to purchase at a price last seen almost eight months ago. The $11.50-per-share margin of safety to the "if put" price means that Nike could drop by as much as another 16% without causing a loss on expiration date.
On the basis of past history, Nike is likely to increase sales, cash flow, earnings and dividends between now and January 2016. That would provide an even greater level of confidence for put-sellers.
The margin maintenance requirement runs only about $1,200 per contract at present. That transates to a potential cash-on-cash return of about 80% in just under two years. Those who love Nike's products should take a run at its options.
You will probably come out a winner at the trade's finish line.
At the time of publication, I had no position at the time of writing but I may establish one soon.