Exploring Covered Calls to Enhance Returns Beyond Dividends
Shareholders of NiSource Inc. (Symbol: NI) interested in increasing their income beyond the stock’s 2.9% annual dividend yield might consider selling a July covered call at the $40 strike price. By doing so, they can collect a premium valued at $1.00, which yields an additional 6.2% return based on the current stock price. This strategy, known as YieldBoost at Stock Options Channel, could bring the total annualized rate to 9.1% if the stock remains uncalled. However, if the stock rises above $40, any upside potential would be forfeited. This scenario would require NI shares to climb 5.1% from current levels, resulting in a 7.7% return, inclusive of any dividends earned before the stock is called.
Dividend amounts can be unpredictable and often reflect the profitability fluctuations within a company. For NiSource Inc., examining the dividend history chart below can help assess whether the most recent dividend is sustainable, thereby solidifying expectations around the 2.9% annualized yield.
The chart below highlights NI’s trailing twelve-month trading history with the $40 strike marked in red:
Utilizing the chart and understanding the stock’s historical volatility can aid investors in determining if selling the July covered call at the $40 strike offers an appealing reward for the risk of capping potential gains beyond that strike. Our calculations show that NiSource’s trailing twelve-month volatility is at 16%, based on the last 250 trading days and the current price of $38.16. For other call options strategies across different expiration dates, visit the NI Stock Options page on StockOptionsChannel.com.
In mid-afternoon trading on Wednesday, the put volume among S&P 500 components reached 1.17 million contracts, while call volume hit 2.07 million, resulting in a put:call ratio of 0.56. This marks a notable preference for call options, as it deviates from the long-term median put:call ratio of 0.65. Traders are exhibiting a stronger interest in calls today.
Top YieldBoost Calls of the S&P 500 »
Also see:
- Funds Holding AMN
- Funds Holding RETO
- Funds Holding IMFI
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
