Shareholders of Bank OZK (Symbol: OZK) seeking to enhance their income beyond the stock’s current 3.5% annualized dividend yield have an intriguing opportunity. By selling the October covered call at the $57.50 strike price, investors can collect a premium based on the 20 cents bid. This strategy annualizes to an impressive additional 72.1% rate of return against the current stock price. At Stock Options Channel, we refer to this as the YieldBoost. In this scenario, shareholders could achieve a total annualized rate of 75.7%, assuming the stock is not called away.
However, it’s important to note that any upside beyond $57.50 would be forfeited if the stock rises to that level and is subsequently called away. For this to happen, OZK shares would need to climb 13.6% from current levels. In the event that the stock is called, shareholders would still earn a 14% return from this trading level, in addition to any dividends collected prior to the stock being called.
Dividend amounts can be unpredictable, often fluctuating with the company’s profitability. To assess whether Bank OZK’s most recent dividend is likely to continue, examining the dividend history chart for OZK can provide valuable insights. This analysis can help determine if a 3.5% annualized dividend yield is a reasonable expectation.
Additionally, the chart below illustrates OZK’s trailing twelve-month trading history, with the $57.50 strike price highlighted in red:
The above chart, along with the stock’s historical volatility, serves as a useful guide when combined with fundamental analysis. This can help determine whether selling the October covered call at the $57.50 strike offers a favorable reward relative to the risk of giving up potential upside beyond that price. (Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve-month volatility for Bank OZK, based on the last 250 trading day closing values and today’s price of $50.76, to be 34%. For additional call options contract ideas with various expirations, visit the OZK Stock Options page on StockOptionsChannel.com.
In mid-afternoon trading on Wednesday, the put volume among S&P 500 components reached 554,595 contracts, while call volume stood at 1.65 million, resulting in a put:call ratio of 0.34 for the day. This is significantly lower than the long-term median put:call ratio of 0.65, indicating a strong preference for calls among buyers in options trading today. Find out which 15 call and put options traders are discussing today.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
