One of the five stocks Dave Van Knapp spotlighted in his Top 5 Stocks to Buy for November 2025, was PepsiCo (PEP) — and for good reason.
PepsiCo is a $200 billion global powerhouse with more than 50 years of consecutive dividend increases, an A+ credit rating, and a 4% yield that’s backed by one of the safest payouts in the S&P 500. Dave noted that the stock looks undervalued right now, and I agree.
But instead of buying shares outright, I decided to take a slightly different path.
On November 10, 2025, I sold one cash-secured put option on PEP in my Fidelity 401(k). The contract expires January 16, 2026 and has a $140 strike price. In return, I collected an immediate $450 in option income ($4.50 per share).
Two Ways to Play PepsiCo
| Strategy | Buy Shares Outright | Sell $140 Cash-Secured Put (Greg’s Trade) |
|---|---|---|
| Action | Buy 100 shares at $142.07 | Sell 1 put contract (100 shares) at $140 |
| Cash Outlay | $14,207 | $14,000 (collateral) |
| Immediate Income | $0 | +$450 premium |
| Break-Even Price | $142.07 | $135.50 ($140 – $4.50) |
| Outcome if PEP ≥ $140 at Expiration | Keep shares, collect dividends | Keep $450 income, no shares assigned |
| Outcome if PEP < $140 at Expiration | Shares decline in value | Get assigned 100 shares at $135.50 effective cost |
| Yield (annualized) | 4% | 17.5% (if put expires), 4.2% (if put exercised) |
Bottom line: I’m either earning a 17.5% annualized yield or buying PepsiCo at an even bigger discount — win-win.
Why I Consider This a “Safe” Trade
Nothing in investing is ever truly risk-free — but this trade is what I’d call “relatively safe.” There are two key reasons why:
- The strike price is below the current market price. I only agree to buy PEP if it falls to $140 — which is already cheaper than where it trades today ($142.07). That built-in discount provides an extra margin of safety.
- The option premium reduces my cost basis. The $4.50 per share I collected immediately lowers my effective purchase price to $135.50. That means even if I’m assigned shares, I’ll own PEP at an additional discount.
Together, those factors make this setup significantly safer than simply buying shares at the current market price — all while generating instant income upfront.
Why This Setup Works
Dave’s analysis shows PEP is attractive right now, so we can buy here and likely do well over the long run. Alternatively, by selling a select put option, we can get paid double-digit annualized income or get to own PEP at an even better entry price.
If the stock stays above $140 through expiration, I keep the full $450 and can move on to the next opportunity. If it dips below $140, I’ll happily own this dividend aristocrat at a discounted cost-basis and a 4.2 yield%.
Either way, it’s a win.
That’s the beauty of combining Dave’s research with a select option-income strategy: we’re taking great dividend growth ideas and squeezing out even more income and downside protection.
The Takeaway
PepsiCo remains one of the most reliable income stocks on the planet. Dave likes it enough to buy it today. I like it enough to get paid now for the chance to own it even cheaper later.
Invest accordingly!
Greg Patrick
Source: Dividends & Income
