YieldBoost Kadant To 11.4% Using Options

Shareholders of Kadant Inc (KAI) looking to boost their income beyond the stock's 1.4% annualized dividend yield can sell the April 2014 covered call at the $40 strike and collect the premium based on the $1.75 bid, which annualizes to an additional 10.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.4% annualized rate in the scenario where the stock is not called away. Any upside above $40 would be lost if the stock rises there and is called away, but KAI shares would have to climb 8.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 13.1% return from this trading level, in addition to any dividends collected before the stock was called.

START SLIDESHOW:
Top YieldBoost Calls of Stocks Conducting Buybacks »

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 Kadant Inc, looking at the dividend history chart for KAI 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 1.4% annualized dividend yield.

KAI+Dividend+History+Chart

Below is a chart showing KAI's trailing twelve month trading history, with the $40 strike highlighted in red:

Loading+chart++2013+TickerTech.com

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the April 2014 covered call at the $40 strike gives good reward for the risk of having given away the upside beyond $40. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Kadant Inc (considering the last 250 trading day closing values as well as today's price of $36.93) to be 31%. For other call options contract ideas at the various different available expirations, visit the KAI Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Tuesday, the put volume among S&P 500 components was 686,384 contracts, with call volume at 1.53M, for a put:call ratio of 0.45 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.

null

More from Stocks

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Danica Patrick's Final Race at 2018 Indianapolis 500: What She Thinks About Cars

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

Why The FANG Stocks' Dominance May Not Be So Bad For The Market

At End of May, Investors Signalling They May Stay Away

At End of May, Investors Signalling They May Stay Away

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Inside Carnival's Mind Blowing New Horizon Cruise Ship (Video)

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever

Neel Kashkari: The Heart of Our Financial System Is More Radioactive Than Ever