Unlocking Additional Income with Covered Call Options
Shareholders of PHINIA Inc (Symbol: PHIN) have a chance to enhance their income beyond the stock’s 1.9% annualized dividend yield. By selling a covered call with a $60 strike price that expires in May 2025, investors can collect a premium priced at $2.70. This transaction could represent an annualized return of 10.5% compared to the current stock price. Thus, shareholders could achieve a total annualized return of 12.4% if the stock is not called away.
It’s important to consider that should PHIN’s shares rise above $60 and be called away, potential gains would be forfeited. However, for the stock to reach this level, it must increase by 13.5%, meaning if a call option is exercised, the shareholder could realize an 18.6% return from this trading level, in addition to any received dividends prior to the stock being called.
Generally, predicting dividend amounts can be challenging as they are often influenced by each company’s profitability. Analyzing the dividend history for PHINIA Inc can provide insights into whether the current 1.9% dividend yield is sustainable.
Below is a chart showing PHIN’s trailing twelve-month trading history, with the $60 strike price emphasized in red:
The above chart, alongside the historical volatility of the stock, serves as a useful guide in conjunction with fundamental analysis. This helps evaluate whether selling the May 2025 covered call at the $60 strike provides a favorable risk-to-reward ratio by surrendering the upside beyond this price point. The volatility for PHINIA Inc is calculated at 35%, based on the last 251 trading days and today’s stock price of $52.95. For more options contract ideas with various expirations, visit PHIN Stock Options on StockOptionsChannel.com.
In mid-afternoon trading on Tuesday, the put volume among S&P 500 components reached 888,080 contracts, while call volume stood at 1.54M, resulting in a put-to-call ratio of 0.58 for the day. This number indicates a stronger preference for calls in options trading compared to the long-term median put-to-call ratio of 0.65.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
