Maximizing Income: AEIS Shareholders Eye Covered Call Strategy

For shareholders of Advanced Energy Industries Inc. (Symbol: AEIS) seeking higher income than its current annualized dividend yield of 0.4%, a viable strategy involves selling a July covered call at the $110 strike. This would allow investors to collect a premium based on the $7.50 bid, which equates to an annualized return of 20.8% against the current stock price. In this scenario, shareholders could realize a total annualized return of 21.1%, provided the stock is not called away.

However, it’s important to note that any additional upside above $110 would be forfeited if the stock rises to that level and is subsequently called. Currently, AEIS shares would need to increase 7.6% for a call to occur, which would result in a still healthy return of 14.9% for the shareholder, in addition to any dividends received before the shares are called.

Assessing Dividend Stability and History

Dividend payments can fluctuate based on a company’s profitability, making them less predictable. To gauge the likelihood of the recent dividend of 0.4% being sustained, investors can refer to the dividend history chart for AEIS displayed below.

Analyzing AEIS Trading History

The chart below illustrates AEIS’s trailing twelve-month trading history, emphasizing the $110 strike in red:

This chart, when combined with AEIS’s historical volatility data, can provide insight into whether selling the July covered call at the $110 strike offers adequate reward given the potential risk of missing out on additional gains beyond that price. Notably, most options do expire worthless; it’s crucial to assess this alongside other common myths regarding options trading.

Currently, we’ve calculated the trailing twelve-month volatility for Advanced Energy Industries Inc. to be 39%, based on 250 trading day closing values and today’s price of $103.27. For more options contract ideas across various expirations, please visit the AEIS Stock Options page at StockOptionsChannel.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.