Maximizing Income with NAPCO Security Technologies’ Covered Calls

Exploring Covered Call Strategies to Boost Returns

Shareholders of NAPCO Security Technologies, Inc. (Symbol: NSSC) can enhance their income beyond the current 1.2% annual dividend yield by selling a March 2025 covered call at a $45 strike price. Doing so can bring in a premium of $2.00 per share. This premium results in an additional 15.5% rate of return on the stock’s current price. By combining this with the dividend, investors could see a total annualized return of 16.8%, as long as the stock price remains below $45.

Should the stock rise above $45 and get called away, investors would have to accept the loss of any further gains. However, this can happen only if NSSC shares increase by 11.1% from their current level. In that case, the total return accumulated would still be impressive: around 16%, including dividends, before the stock is called away.

It’s important to note that dividend payments aren’t always regular and can fluctuate based on a company’s profitability. Reviewing NAPCO Security Technologies’ dividend history may offer indicators on whether the recent 1.2% yield trend is likely to continue.

The following chart illustrates NSSC’s trading history over the last twelve months, with the $45 strike highlighted in red:

Using the chart alongside the stock’s historical volatility can assist in evaluating the trade-off of selling the March 2025 covered call at the $45 strike price. It is noteworthy that most options tend to expire worthless, and investors should weigh the potential risks against this strategy. The trailing twelve-month volatility for NAPCO Security Technologies is calculated at 50%, considering the last 251 trading days and the current price of $40.60. For additional options strategies, visit the NSSC Stock Options page on StockOptionsChannel.com.

During mid-afternoon trading on Monday, the option volume for S&P 500 components showed 1.33 million put contracts and 3.27 million call contracts, resulting in a put-to-call ratio of 0.41 for the day. Comparing this to the long-term median ratio of 0.65 highlights a marked preference for call options among traders today.

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Also see:

• MMU market cap history
• Institutional Holders of UBCB
• GCTS YTD Return

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