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 3M Co (MMM) looking to boost their income beyond the stock's 2.5% annualized dividend yield. Selling the covered call at the $150 strike and collecting the premium based on the $2.73 bid, annualizes to an additional 2.8% 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 5.2% annualized rate in the scenario where the stock is not called away. Any upside above $150 would be lost if the stock rises there and is called away, but MMM shares would have to advance 7.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 9% 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 3M Co, highlighting in green where the $120 strike is located relative to that history, and highlighting the $150 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 3M Co (considering the last 251 trading day MMM historical stock prices using closing values, as well as today's price of $140.11) to be 15%.
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