Maximizing Returns with Red Rock Resorts: A Call Option Strategy

Exploring Income Boosts Beyond Dividends

Investors holding shares of Red Rock Resorts Inc (Symbol: RRR) may want to consider a strategy to enhance their income, particularly if the stock’s current 2.2% annualized dividend yield isn’t enough. One option is to sell a covered call for July at a $50 strike price. By doing so, shareholders could collect a premium priced at $2.30, equating to an annualized return of approximately 9.6% on the current stock price. Together with the dividend yield, this creates a total potential return of 11.8%—assuming the stock is not called away. In scenarios where the stock appreciates above $50, the shareholder stands to forfeit any additional upside, although RRR shares would need to appreciate 11.8% to trigger this outcome. In such cases, shareholders could still realize a total return of 16.9% from this trading level, along with any unused dividends accrued before the stock is called.

While dividends can fluctuate based on a company’s profitability, studying Red Rock Resorts’ dividend history can provide insights into the sustainability of its current 2.2% yield. Below, you will see a chart representing RRR’s previous dividend distributions:

Assessing Volatility and Call Options

Next, let’s look at RRR’s trailing twelve-month trading history, particularly highlighting the $50 strike price in the chart below:

This historical chart, along with the stock’s volatility measures, can offer valuable context for evaluating the risks and benefits of selling the July covered call at the $50 strike. Currently, RRR’s trailing twelve-month volatility—based on the last 251 trading days and the present price of $44.79—is calculated at 33%. For more call option ideas across different expiration dates, check out the RRR Stock Options page at StockOptionsChannel.com.

Market Trends in Trading Volume

As of mid-afternoon trading on Friday, among S&P 500 stocks, put volume stood at 1.21 million contracts while call volume reached 2.67 million, yielding a put:call ratio of 0.45 for the day. This figure is notably lower than the long-term median of 0.65, indicating that traders are leaning heavily toward call options in today’s trading environment. Keep up-to-date on which call and put options are gaining attention in the markets.

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