How To YieldBoost Harte-Hanks From 3.7% To 14.5% Using Options

Shareholders of Harte-Hanks, Inc. (HHS) looking to boost their income beyond the stock's 3.7% annualized dividend yield can sell the March 2014 covered call at the $10 strike and collect the premium based on the 40 cents bid, which annualizes to an additional 10.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 14.5% annualized rate in the scenario where the stock is not called away. Any upside above $10 would be lost if the stock rises there and is called away, but HHS shares would have to climb 9.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 14.2% return from this trading level, in addition to any dividends collected before the stock was called.

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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 Harte-Hanks, Inc., looking at the dividend history chart for HHS 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 3.7% annualized dividend yield.

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Below is a chart showing HHS's trailing twelve month trading history, with the $10 strike highlighted in red:

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The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the March 2014 covered call at the $10 strike gives good reward for the risk of having given away the upside beyond $10. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Harte-Hanks, Inc. (considering the last 250 trading day closing values as well as today's price of $9.16) to be 40%. For other call options contract ideas at the various different available expirations, visit the HHS Stock Options page of StockOptionsChannel.com.

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