Maximizing YieldBoost on SMG: Strategies to Increase from 3.9% to 8.6% with Options

Published On: December 24, 2024 4:43 pm

Investing in Scotts Miracle-Gro: A Call to Boost Your Returns

Opt for Covered Calls to Maximize Your Income

Shareholders of Scotts Miracle-Gro Co (Symbol: SMG) seeking greater income than the stock’s current 3.9% dividend yield may consider selling a covered call for January 2027 at the $95 strike price. By doing so, investors can capture a premium based on a $6.40 bid, translating to an additional annualized return of 4.6%. This strategy pushes the total potential annualized return to 8.6%, assuming the stock remains uncalled. However, if the shares exceed $95, the potential upside gets capped. This would require a significant 41.2% increase in stock value, leading to a total return of 50.7% if the stock is called, alongside earned dividends prior to being called away.

Dividend payments often fluctuate as they rely on company profitability. For Scotts Miracle-Gro, examining its dividend history can provide insights into the likelihood of sustaining the current 3.9% yield. Below is the dividend history chart for SMG:

SMG Dividend History Chart

Additionally, the chart of SMG’s trailing twelve-month trading history illustrates the $95 strike point in red:

Loading chart — 2024 TickerTech.com

This chart, along with an understanding of the stock’s volatility, can assist investors in determining whether selling the January 2027 covered call at the $95 strike is a worthwhile trade-off for the potential loss of upside gains. Notably, stocks don’t always behave predictably in the options market. Evaluating the trailing twelve-month volatility for Scotts Miracle-Gro Co, based on the last 251 trading days concluding at today’s price of $67.05, stands at 43%. To explore more options strategies, including different expirations, visit the SMG Stock Options page on StockOptionsChannel.com.

During mid-afternoon trading on Tuesday, put volume for S&P 500 components reached 903,272 contracts, while call volume was considerably higher at 1.98 million. This resulted in a put:call ratio of 0.46 for the day. Compared to the long-term median ratio of 0.65, the current data indicates stronger buying preferences for call options among traders.

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