This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

One Put, One Call Option To Know About For DuPont (DD)

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is DuPont (DD). So this week we highlight one interesting put contract, and one interesting call contract, from the July 2014 expiration for DD. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $52.50 strike, which has a bid at the time of this writing of $1.17. Collecting that bid as the premium represents a 2.2% return against the $52.50 commitment, or a 3.5% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

START SLIDESHOW:
Top YieldBoost DD Puts »

Selling a put does not give an investor access to DD's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless DuPont sees its shares decline 14.7% and the contract is exercised (resulting in a cost basis of $51.33 per share before broker commissions, subtracting the $1.17 from $52.50), the only upside to the put seller is from collecting that premium for the 3.5% annualized rate of return.

Worth considering, is that the annualized 3.5% figure actually exceeds the 2.9% annualized dividend paid by DuPont, based on the current share price of $61.50. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to fall 14.65% to reach the $52.50 strike price.

Always important when discussing dividends is the fact that, in general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of DuPont, looking at the dividend history chart for DD below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 2.9% annualized dividend yield.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs