Turning to the other side of the option chain, we highlight one call contract of particular interest for the September expiration, for shareholders of Alcoa, Inc. (AA) looking to boost their income beyond the stock's 0.9% annualized dividend yield. Selling the covered call at the $13 strike and collecting the premium based on the 88 cents bid, annualizes to an additional 15.8% 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 16.8% annualized rate in the scenario where the stock is not called away. Any upside above $13 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 happen, meaning that in the scenario where the stock is called, the shareholder has earned a 8.8% 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 $12 strike is located relative to that history, and highlighting the $13 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 September 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 252 trading day AA historical stock prices using closing values, as well as today's price of $12.74) to be 29%. In mid-afternoon trading on Monday, the put volume among S&P 500 components was 671,488 contracts, with call volume at 1.32M, for a put:call ratio of 0.51 so far for the day. Compared to the long-term median put:call ratio of .65, that represents very high call volume relative to puts; in other words, buyers are preferring calls in options trading so far today. Find out which 15 call and put options traders are talking about today.
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