Turning to the other side of the option chain, we highlight one call contract of particular interest for the June expiration, for shareholders of Alcoa, Inc. (AA) looking to boost their income beyond the stock's 1% annualized dividend yield. Selling the covered call at the $12 strike and collecting the premium based on the 72 cents bid, annualizes to an additional 21.7% 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 22.7% annualized rate in the scenario where the stock is not called away. Any upside above $12 would be lost if the stock rises there and is called away, but AA shares would have to advance 1.9% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 8% 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 Alcoa, Inc., highlighting in green where the $11 strike is located relative to that history, and highlighting the $12 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 June 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 Alcoa, Inc. (considering the last 251 trading day AA historical stock prices using closing values, as well as today's price of $11.78) to be 28%.