YieldBoost HOMB From 3% To 71.4% Using Options

Shareholders of Home BancShares Inc (Symbol: HOMB) looking to enhance their income beyond the stock’s 3% annualized dividend yield have an interesting opportunity. By selling the October covered call at the $30 strike, investors can collect a premium based on the 5 cents bid. This strategy annualizes to an impressive additional 68.4% rate of return against the current stock price, a concept we refer to as YieldBoost. In this scenario, the total annualized return could reach 71.4%, assuming the stock is not called away.

However, it’s important to note that any upside beyond $30 would be forfeited if the stock rises and is called away. For this to happen, HOMB shares would need to advance 12.4% from current levels. In the event the stock is called, shareholders would still earn a 12.6% return from this trading level, in addition to any dividends collected prior to the stock being called.

Dividend amounts can often be unpredictable, fluctuating with the company’s profitability. To assess whether the most recent dividend is likely to continue, examining the dividend history chart for HOMB can provide valuable insights. This analysis can help determine if a 3% annualized dividend yield is a reasonable expectation.

Below is a chart illustrating HOMB’s trailing twelve-month trading history, with the $30 strike highlighted in red:

The chart above, along with the stock’s historical volatility, serves as a useful guide when combined with fundamental analysis. This can help investors evaluate whether selling the October covered call at the $30 strike offers a favorable reward for the risk of giving up any 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 Home BancShares Inc, considering the last 250 trading day closing values along with today’s price of $26.79, to be 29%. For additional call options contract ideas across various expirations, visit the HOMB Stock Options page on StockOptionsChannel.com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 688,107 contracts, while call volume reached 1.64 million, resulting in a put:call ratio of 0.42 for the day. This figure indicates a significantly high call volume relative to puts, as it compares to the long-term median put:call ratio of 0.65. In essence, buyers are favoring calls in options trading today. Find out which 15 call and put options traders are discussing today.

Top YieldBoost Calls of the S&P 500 »

Also see:

• Top Stocks Held By Jeremy Grantham
• Funds Holding UAG
• LXRX Videos

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.