YieldBoost Daktronics From 3.1% To 16.1% Using Options

Shareholders of Daktronics Inc. (DAKT) looking to boost their income beyond the stock's 3.1% annualized dividend yield can sell the January 2014 covered call at the $12.50 strike and collect the premium based on the 30 cents bid, which annualizes to an additional 13% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.1% annualized rate in the scenario where the stock is not called away. Any upside above $12.50 would be lost if the stock rises there and is called away, but DAKT shares would have to advance 6.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.4% return from this trading level, in addition to any dividends collected before the stock was called.

START SLIDESHOW:
Top YieldBoost Calls of the S&P 500 »

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 Daktronics Inc., looking at the dividend history chart for DAKT 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 3.1% annualized dividend yield.

DAKT+Dividend+History+Chart

Below is a chart showing DAKT's trailing twelve month trading history, with the $12.50 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 January 2014 covered call at the $12.50 strike gives good reward for the risk of having given away the upside beyond $12.50. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Daktronics Inc. (considering the last 252 trading day closing values as well as today's price of $11.74) to be 33%. For other call options contract ideas at the various different available expirations, visit the DAKT Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 176,926 contracts, with call volume at 314,407, for a put:call ratio of 0.56 so far for the day. Compared to the long-term median put:call ratio of .65, that represents high call volume relative to puts; in other words, buyers are showing a preference for calls in options trading so far today. Find out which 15 call and put options traders are talking about today.

null

More from Stocks

Stocks Trade Mixed Amid Progress on U.S.-China Trade; Dow Turns Lower

Stocks Trade Mixed Amid Progress on U.S.-China Trade; Dow Turns Lower

Micron Shares Soar; Chipmaker Is 'Managing for Profitability' Now, Says Analyst

Micron Shares Soar; Chipmaker Is 'Managing for Profitability' Now, Says Analyst

Big Banks' Shift to Digital Could Bring These Significant Shareholder Benefits

Big Banks' Shift to Digital Could Bring These Significant Shareholder Benefits

Red Hot Micron Is Still One Heck of a Bargain

Red Hot Micron Is Still One Heck of a Bargain

Stacey Cunningham: From Intern to Head of the New York Stock Exchange

Stacey Cunningham: From Intern to Head of the New York Stock Exchange