Maximizing Income with Element Solutions: A Strategic Approach for Investors
Exploring Covered Calls for Enhanced Returns
Shareholders of Element Solutions Inc (Symbol: ESI) seeking higher income than the stock’s current 1.2% annual dividend yield might consider selling a covered call for February 2025 at a $30 strike price. By doing so, investors can collect a premium valued at $1.15, which translates to an annualized return of approximately 13.1% on the current stock price. This tactic, known as YieldBoost at Stock Options Channel, offers a potential total return of 14.2% if the stock remains under $30. If ESI’s price climbs above $30, some upside would be forfeited; the stock would need to increase by 11.1% for that scenario to play out. Even then, shareholders would reap a 15.4% return from this trading level along with any dividends received before the stock is called away.
Understanding Dividend Variability
Dividends often fluctuate, influenced by a company’s profitability. To gauge the sustainability of Element Solutions’ recent dividend, investors can refer to the dividend history chart for ESI provided below. This historical perspective can help determine the likelihood of maintaining that 1.2% annual yield.
Assessing Trading Volatility
The chart below illustrates ESI’s trailing twelve months of trading history, highlighting the $30 strike in red:
Consideration of this chart, alongside the stock’s historical volatility, is crucial for evaluating whether selling the February 2025 covered call at the $30 strike offers a suitable reward-to-risk ratio. Most options do not lead to an execution; however, understanding the basis of volatility can clarify potential outcomes. Currently, the trailing twelve-month volatility for Element Solutions Inc, calculated using 251 trading day closing values plus today’s price of $26.94, stands at 29%. For alternative options strategies, the ESI Stock Options page at StockOptionsChannel.com is a valuable resource.
Market Trends
During mid-afternoon trading last Friday, the put volume among S&P 500 components reached 1.25 million contracts, contrasted with call volume hitting 2.56 million. This yields a put:call ratio of 0.49 for the day. Compared to a long-term median put:call ratio of 0.65, this indicates a notable preference for call options among traders.
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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.
