Exploring Covered Call Opportunities to Boost Returns
Shareholders of Tanger Inc (Symbol: SKT) looking to increase their income beyond the current stock’s 3.3% annualized dividend yield have a viable option. By selling the January covered call at the $37 strike, investors can collect a premium of 5 cents per share, leading to an annualized return of 55.2% based on the current stock price. This strategy, referred to as YieldBoost, could result in an impressive total annualized rate of 58.6% if the stock isn’t called away. However, if the share price surpasses $37, any upside beyond that will be forfeited. Given that SKT shares would need to rise 12% for that to happen, the potential return in such a case could still be 12.1%, not accounting for any dividends received prior to the shares being called.
Understanding Dividend History and Future Expectations
Dividend payments can vary and often reflect the company’s profitability. Looking at Tanger Inc’s historical dividend data can provide insights into whether the latest dividend is sustainable, making it essential in assessing the reliability of the 3.3% annualized yield.
Evaluating Historical Stock Performance
The following chart illustrates SKT’s trading history over the past twelve months, with the $37 strike price marked in red:
Historical volatility can help investors weigh the risks and rewards of selling the January covered call at the $37 strike, considering the potential loss of gains above this price. Currently, the trailing twelve-month volatility for Tanger Inc, based on the last 251 trading days and today’s price of $33.05, stands at 22%. For more call option strategies with varying expirations, check out the SKT Stock Options page on StockOptionsChannel.com.
Current Market Activity: Call Volume Surges
At mid-afternoon trading on Friday, put volume for S&P 500 components reached 1.03 million contracts, while call volume soared to 2.13 million, resulting in a put:call ratio of 0.49 for the day. This indicates a strong preference for calls compared to puts, especially when compared to the long-term median put: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.
