YieldBoost MPC From 1.9% To 6.3% Using Options

Shareholders of Marathon Petroleum Corp. (MPC) looking to boost their income beyond the stock's 1.9% annualized dividend yield can sell the January 2016 covered call at the $110 strike and collect the premium based on the $8.00 bid, which annualizes to an additional 4.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.3% annualized rate in the scenario where the stock is not called away. Any upside above $110 would be lost if the stock rises there and is called away, but MPC shares would have to advance 23.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 32.3% 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 Marathon Petroleum Corp., looking at the dividend history chart for MPC 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 1.9% annualized dividend yield.

MPC+Dividend+History+Chart

Below is a chart showing MPC's trailing twelve month trading history, with the $110 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 2016 covered call at the $110 strike gives good reward for the risk of having given away the upside beyond $110. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Marathon Petroleum Corp. (considering the last 252 trading day closing values as well as today's price of $89.20) to be 33%. For other call options contract ideas at the various different available expirations, visit the MPC Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 299,829 contracts, with call volume at 564,111, for a put:call ratio of 0.53 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.

More from Stocks

Cramer: North Korea Market Selloff Means Buying Opportunities in Domestic Stocks

Cramer: North Korea Market Selloff Means Buying Opportunities in Domestic Stocks

Dow Falls Sharply as Trump Calls Off North Korea Summit

Dow Falls Sharply as Trump Calls Off North Korea Summit

Stocks Could Easily Crater Into Memorial Day Weekend

Stocks Could Easily Crater Into Memorial Day Weekend

Video: Here Is How Real Estate Investment Trusts Can Boost Your Portfolio

Video: Here Is How Real Estate Investment Trusts Can Boost Your Portfolio

3 Red-Hot Chip Stocks Trading at Bargain Prices

3 Red-Hot Chip Stocks Trading at Bargain Prices