VSE Corp. Offers Covered Call Opportunity for Income Boost
Shareholders of VSE Corp. (Symbol: VSEC) may look to enhance their income beyond the stock’s 0.3% annualized dividend yield by selling the October covered call at the $135 strike price. This strategy allows investors to collect a premium based on the $9.80 bid, which translates to an annualized return of 17.6% based on the current stock price. If the stock remains uncalled, this approach could result in a total annualized return of 18%. However, any gains above $135 would be forfeited if the stock is called away. Notably, VSEC shares would need to appreciate by 8.5% for this scenario to unfold, which would yield a 16.4% return from the trading level, in addition to any dividends received before the call.
Generally, dividends can fluctuate, closely mirroring the profitability trends of a company. For VSE Corp., reviewing the dividend history chart below may assist in evaluating the likelihood of maintaining the current 0.3% annualized dividend yield.
Below is a chart displaying VSEC’s trailing twelve-month trading history, with the $135 strike indicated in red:
The chart above, coupled with the stock’s historical volatility, can serve as a valuable tool along with fundamental analysis. This combination helps assess whether selling the October covered call at the $135 strike offers sufficient rewards compared to the potential risk of losing any upside above this level. We calculate VSE Corp.’s trailing twelve-month volatility to be 47%, based on the last 250 trading day closing values, together with today’s price of $123.31.
In mid-afternoon trading on Wednesday, the put volume among S&P 500 components stood at 595,395 contracts, while call volume reached 1.04 million, resulting in a put-call ratio of 0.57 for the day. In comparison to the long-term median put-call ratio of 0.65, this indicates a notable preference for calls among options traders today.
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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.
