Turning to the other side of the option chain, we highlight one call contract of particular interest for the January 2015 expiration, for shareholders of Hewlett-Packard Co (HPQ) looking to boost their income beyond the stock's 2% annualized dividend yield. Selling the covered call at the $35 strike and collecting the premium based on the $1.26 bid, annualizes to an additional 4.9% rate of return against the current stock price (this is what we at Stock Options Channel refer to as the YieldBoost), for a total of 6.8% annualized rate in the scenario where the stock is not called away. Any upside above $35 would be lost if the stock rises there and is called away, but HPQ shares would have to advance 18.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 22.6% return from this trading level, in addition to any dividends collected before the stock was called.
The chart below shows the trailing twelve month trading history for Hewlett-Packard Co, highlighting in green where the $25 strike is located relative to that history, and highlighting the $35 strike 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 January 2015 put or call options highlighted in this article deliver a rate of return that represents good reward for the risks. We calculate the trailing twelve month volatility for Hewlett-Packard Co (considering the last 251 trading day HPQ historical stock prices using closing values, as well as today's price of $29.60) to be 35%. In mid-afternoon trading on Monday, the put volume among S&P 500 components was 704,886 contracts, with call volume at 1.20M, for a put:call ratio of 0.59 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.