Enhancing Income with Covered Calls
For shareholders of CNH Industrial NV (Symbol: CNH), there is an opportunity to increase their income beyond the stock’s current 4.2% annualized dividend yield. By selling a covered call with a $12.50 strike price, expiring in March 2025, investors can earn a premium at a 50 cents bid. This strategy could provide an extra 10.7% annualized return based on the stock’s current price, totaling a potential annualized return of 14.9% if the stock remains below $12.50. However, if the stock rises beyond that level, the upside would be capped, which would require a 12.7% increase from current levels. In such a case, shareholders could still achieve a 17.2% return, including any dividends before the shares are called away.
Dividend Stability: A Closer Look
Dividend payments can often vary based on a company’s profitability. To assess the likelihood of CNH Industrial maintaining its 4.2% yield, investors should examine the company’s dividend history. The chart below presents that crucial information:
Understanding CNH’s Trading Landscape
The following chart illustrates CNH’s trading history over the past twelve months, with the $12.50 strike point clearly marked in red:
The combination of this chart and the stock’s historical volatility can help investors decide if selling a covered call at the $12.50 strike offers a favorable reward-to-risk ratio. Currently, the trailing twelve-month volatility for CNH Industrial NV is calculated at 32%, based on the last 250 trading day’s closing values, along with today’s price of $11.10. Check out different call option strategies on the CNH Stock Options page at StockOptionsChannel.com.
Market Overview: Trends in Options Trading
During mid-afternoon trading on Friday, the put volume among S&P 500 companies reached 843,174 contracts, while call volume stood at 1.55 million, resulting in a put:call ratio of 0.54. This figure is significantly lower than the long-term median ratio of 0.65, indicating a strong preference for call options among buyers. For further insights, explore the top 15 call and put options making headlines today.
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- STML Insider Buying
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
