Investing Insight: Shareholders can enhance returns with September covered calls.
Shareholders of Dime Community Bancshares Inc (Symbol: DCOM) have an opportunity to increase their income beyond the stock’s annualized dividend yield of 3.2%. By selling the September covered call at the $35 strike price, investors can receive a premium priced at $2.35. This premium corresponds to an impressive additional annual return of 11.3% based on the current stock price. When combined with the dividend yield, this could result in a total annualized return of 14.5%—assuming the stock is not called away. However, it’s important to note that if the stock’s price exceeds $35 and it gets called, the upside will be forfeited. For the stock to be called, it needs to increase by 10% from its current levels. In that scenario, shareholders would still realize a 17.4% return from this trading strategy, in addition to any dividends earned prior to the call.
Understanding dividends can be tricky as they are tied to a company’s profits, which can fluctuate. For Dime Community Bancshares Inc, reviewing their dividend history chart below can shed light on whether the latest dividend is sustainable, and if maintaining a 3.2% annualized yield is realistic.
Below is a chart detailing DCOM’s trading history over the past twelve months, with the $35 strike highlighted in red:
Analyzing the chart along with historical volatility can help determine if selling the September covered call at the $35 strike is a sound move, given the risks involved in capping potential gains. The trailing twelve-month volatility for Dime Community Bancshares Inc stands at 44%, calculated from the last 250 trading days and the current price of $31.28. To explore other potential call options with various expiration dates, visit the DCOM Stock Options page on StockOptionsChannel.com.
During mid-afternoon trading on Thursday, the S&P 500 saw put volume reach 973,192 contracts, while call volume hit 1.79 million. This resulted in a put to call ratio of 0.54, indicating significantly higher call volume compared to put volume. Such data showcases a trend where buyers favor calls in options trading today.
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Additional Insights:
- UROY shares outstanding history
- EUDG Year-to-Date Return
- PCH Year-to-Date Return
The views and opinions expressed herein belong to the author and may not reflect the positions of Nasdaq, Inc.
