Shareholders of HCP (HCP) looking to boost their income beyond the stock's 5.7% annualized dividend yield can sell the July covered call at the $40 strike and collect the premium based on the 95 cents bid, which annualizes to an additional 6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.7% annualized rate in the scenario where the stock is not called away. Any upside above $40 would be lost if the stock rises there and is called away, but HCP shares would have to advance 4.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 6.8% return from this trading level, in addition to any dividends collected before the stock was called.
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 HCP, Inc., looking at the dividend history chart for HCP 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 5.7% annualized dividend yield.
Below is a chart showing HCP's trailing twelve month trading history, with the $40 strike highlighted in red: The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the July covered call at the $40 strike gives good reward for the risk of having given away the upside beyond $40. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for HCP, Inc. (considering the last 252 trading day closing values as well as today's price of $38.34) to be 23%. For other call options contract ideas at the various different available expirations, visit the HCP Stock Options page of StockOptionsChannel.com. In mid-afternoon trading on Wednesday, the put volume among S&P 500 components was 535,950 contracts, with call volume at 944,393, for a put:call ratio of 0.57 so far for the day. Compared to the long-term median put:call ratio of .65, that represents high call volume relative to puts; in other words, buyers are showing a preference for calls in options trading so far today. Find out which 15 call and put options traders are talking about today.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV