Garmin Ltd Shareholders Can Enhance Income with Covered Calls

Shareholders of Garmin Ltd (Symbol: GRMN) seeking higher income beyond the stock’s 1.9% annualized dividend yield have an option to consider. By selling a September covered call at the $200 strike price, investors could collect a premium, currently valued at a $15.20 bid. This would annualize to an additional 18.3% rate of return, resulting in a total potential yield of 20.1% if the shares are not called away. However, any upside above $200 would be forfeited if the stock is called, requiring Garmin shares to increase by 3.5% from current levels. Therefore, should the stock be called, the total return for shareholders would still reflect an 11.3% gain from this trading level, in addition to any dividends earned prior to the call.

Dividend amounts are often unpredictable and typically correlate with the company’s profitability. For Garmin Ltd, examining the dividend history can assist in determining the sustainability of the recent dividend payout, thus helping assess whether a 1.9% annualized yield is a reasonable expectation.

Additionally, the chart below outlines Garmin’s trailing twelve-month trading history, with the $200 strike clearly marked in red:

This chart, combined with GRMN’s historical volatility, can aid shareholders in evaluating whether selling the September covered call at the $200 strike provides a favorable risk-reward trade-off. Typically, most options expire worthless, and it’s essential to weigh that risk against the potential rewards of this strategy. Our analysis indicates that Garmin Ltd has a trailing twelve-month volatility of 40%, calculated from the past 251 trading days alongside today’s price of $193.33. For further options contract ideas based on various expiration dates, please visit the GRMN Stock Options page on StockOptionsChannel.com.

In mid-afternoon trading on Tuesday, the put volume among S&P 500 components totaled 713,693 contracts, with call volume reaching 1.19 million. This resulted in a put-to-call ratio of 0.60 for the day. Compared to the long-term median ratio of 0.65, today’s figures indicate a higher preference for call options, suggesting that buyers are leaning towards calls in the options market.

To explore which call and put options traders are discussing today, click here.

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