Insperity Inc. Offers Tight Call Options Strategy with Strong Returns

Shareholders of Insperity Inc. (Ticker: NSP) seeking to enhance their income beyond the stock’s 3.5% annualized dividend yield might consider selling the October covered call at the $75 strike price. By doing so, they could collect a premium of $4.60. This translates to an annualized return of 15.6% based on the current stock price. Combined with the existing dividend yield, investors could see a total annualized return of 19.1%, assuming the stock is not called away.

However, it’s important to note that any potential gains exceeding $75 would not be realized if the stock price rises to that level and the call option is exercised. Given that Insperity shares would need to increase by 9.2% to hit $75, shareholders would still earn a 15.9% return from this trading position if the stock is called, along with any dividends accrued prior to that point.

Understanding Dividend Reliability

Dividend amounts can fluctuate based on a company’s profitability. Insperity Inc.’s dividend history is crucial for evaluating the sustainability of the current 3.5% annualized yield. A review of the company’s dividend history can help investors determine if this yield is a reasonable expectation moving forward.

Trading Insights

Below is a chart illustrating NSP’s trailing twelve-month trading history, with the $75 strike price marked in red:

The trading chart, combined with the stock’s historical volatility, guides investors in assessing whether selling the October covered call at the $75 strike price presents a favorable risk-reward proposition. It’s worth noting that most options do expire worthless. Currently, Insperity’s trailing twelve-month volatility is calculated at 41%, taking into account the last 250 trading day closing values and today’s price of $68.48. For further options trading ideas regarding NSP, you may refer to the available options page.

Current Market Activity

In mid-afternoon trading on Tuesday, the put volume across S&P 500 components reached 1.07 million contracts, while call volume stood at 2.39 million. This gives a put-to-call ratio of 0.45 for the day. Compared to the long-term median put-to-call ratio of 0.65, this indicates a significant preference for call options among traders today.

Investors may wish to explore additional call and put options currently gaining attention in the market.

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