Shareholders of Toll Brothers Inc. (Symbol: TOL) seeking to enhance their income beyond the stock’s modest 0.7% annualized dividend yield have an interesting opportunity. By selling the January 2028 covered call at the $195 strike price, investors can collect a premium based on the current bid of $12.50. This strategy effectively annualizes to an additional 4% rate of return against the current stock price, a concept we refer to as YieldBoost. In this scenario, the total annualized return could reach 4.7%, assuming the stock is not called away.
However, it’s important to note that any upside beyond $195 would be forfeited if the stock rises to that level and is subsequently called away. For this to occur, TOL shares would need to climb 43.3% from their current levels. In the event that the stock is called, shareholders would still realize a substantial 52.4% return from this trading level, in addition to any dividends collected prior to the call.
Dividend amounts can be unpredictable, often fluctuating with the company’s profitability. For Toll Brothers Inc., examining the dividend history chart below can provide insights into whether the most recent dividend is likely to be sustained, and whether a 0.7% annualized dividend yield is a reasonable expectation.
Below is a chart illustrating TOL’s trailing twelve-month trading history, with the $195 strike price highlighted in red:
The chart above, along with the stock’s historical volatility, serves as a valuable tool when combined with fundamental analysis. This approach can help determine whether selling the January 2028 covered call at the $195 strike offers a favorable reward-to-risk ratio, especially considering the potential loss of upside beyond $195. (Do most options expire worthless? This and six other common options myths debunked). Our calculations indicate that the trailing twelve-month volatility for Toll Brothers Inc., based on the last 250 trading days and the current price of $136.81, stands at 36%. For additional call options contract ideas across various expiration dates, visit the TOL Stock Options page on StockOptionsChannel.com.
In mid-afternoon trading on Friday, the put volume among S&P 500 components reached 1.02 million contracts, while call volume was at 2.29 million, resulting in a put:call ratio of 0.44 for the day. This figure is significantly lower than the long-term median put:call ratio of 0.65, indicating a strong preference for calls among buyers in today’s options trading.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
