Enhancing Income with Covered Calls on Compass Diversified

Shareholders of Compass Diversified (Symbol: CODI) seeking to increase their income can consider selling a December covered call at the $10 strike price. By doing so, they can collect a premium based on the current bid of 45 cents. This strategy could yield an annualized return of 11.5% on top of the existing 16.1% dividend yield, totaling a potential 27.6% annualized return if the stock is not called away. It’s important to note that any price increase above $10 would mean losing out on further gains if the stock rises to that level. However, the stock would need to increase by 57.2% for this scenario to happen, allowing shareholders to achieve a 64.3% return at the $10 call price, in addition to any dividends received prior to the stock being called.

Dividend amounts can often fluctuate, depending on the company’s overall profitability. For Compass Diversified, examining the dividend history below may provide insights into the likelihood of sustaining the current annualized yield of 16.1%.

Additionally, the following chart illustrates CODI’s trailing twelve-month trading history, highlighting the $10 strike in red:

This chart, alongside the stock’s historical volatility, serves as a valuable tool when combined with fundamental analysis. It is crucial to evaluate whether selling the December $10 covered call provides adequate reward relative to the risk of potentially capping upside beyond that price. Current calculations indicate a trailing twelve-month volatility for Compass Diversified at 107%, considering the last 250 trading days and the current price of $6.22. For additional call options ideas with varying expirations, investors can explore the CODI Options page.

During mid-afternoon trading on Thursday, the S&P 500 component put volume reached 908,967 contracts, while call volume stood at 1.99 million contracts, resulting in a put-call ratio of 0.46. This signifies a notable preference for call options, particularly when compared to the long-term median put-call ratio of 0.65, highlighting positive sentiment among options traders today.

Top YieldBoost Calls of the S&P 500 »

Also See:

• NXDT Options Chain
• Institutional Holders of WMLP
• CNMD 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.