Interesting June Stock Options for DD

May 12 2014, 11:40am CDT | by

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is DuPont (NYSE: DD). So this week we highlight one interesting put contract, and one interesting call contract, from the June expiration for DD.

The put contract our YieldBoost algorithm identified as particularly interesting, is at the $66 strike, which has a bid at the time of this writing of 75 cents. Collecting that bid as the premium represents a 1.1% return against the $66 commitment, or a 9% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Click here to find out the Top YieldBoost DD Puts »

Selling a put does not give an investor access to DD’s upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless DuPont sees its shares fall 3.1% and the contract is exercised (resulting in a cost basis of $65.25 per share before broker commissions, subtracting the 75 cents from $66), the only upside to the put seller is from collecting that premium for the 9% annualized rate of return.

Worth considering, is that the annualized 9% figure actually exceeds the 2.6% annualized dividend paid by DuPont by 6.4%, based on the current share price of $68.13. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to lose 3.15% to reach the $66 strike price.

Always important when discussing dividends is the fact that, 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 DuPont, looking at the dividend history chart for DD 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 2.6% annualized dividend yield.

Turning to the other side of the option chain, we highlight one call contract of particular interest for the June expiration, for shareholders of DuPont (NYSE: DD) looking to boost their income beyond the stock’s 2.6% annualized dividend yield. Selling the covered call at the $69 strike and collecting the premium based on the 78 cents bid, annualizes to an additional 9.1% rate of return against the current stock price (this is what we at Stock Options Channel refer to as the YieldBoost), for a total of 11.7% annualized rate in the scenario where the stock is not called away. Any upside above $69 would be lost if the stock rises there and is called away, but DD shares would have to advance 1.2% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 2.4% return from this trading level, in addition to any dividends collected before the stock was called.

Click here to find out the Top YieldBoost DD Calls »

The chart below shows the trailing twelve month trading history for DuPont, highlighting in green where the $66 strike is located relative to that history, and highlighting the $69 strike in red:

The chart above, and the stock’s historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the June put or call options highlighted in this article deliver a rate of return that represents good reward for the risks. We calculate the trailing twelve month volatility for DuPont (considering the last 251 trading day DD historical stock prices using closing values, as well as today’s price of $68.13) to be 16%.

In mid-afternoon trading on Monday, the put volume among S&P 500 components was 651,182 contracts, with call volume at 1.19M, for a put:call ratio of 0.55 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./>

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Fresh cases of Ebola recorded in Nigeria: Official
Abuja, Aug 22 (IANS) Fresh cases of the Ebola virus disease have been recorded in Nigeria, where the highly contagious disease has already claimed five lives, Minister of Health Onyebuchi Chukwu said Friday.
 
 
Fuel cell technology gets a boost
Washington, Aug 22 (IANS) In an impetus for fuel cell technology to build "smart" cars, scientists at Stanford University have developed a low-cost, emissions-free device that uses an ordinary AAA battery to produce hydrogen by water electrolysis.
 
 
3D-printed technology to make drug delivery better
Washington, Aug 22 (IANS) The US researchers have developed an innovative method for using affordable, consumer-grade 3D printers and materials to fabricate custom medical implants that can contain antibacterial and chemotherapeutic compounds for targeted drug delivery.
 
 
Sunlight, not bacteria, key to CO2 in Arctic
Washington, Aug 22 (IANS) Sunlight and not bacteria is the key to triggering the production of carbon dioxide (CO2) from material released by Arctic soils, says a significant study.
 
 
 

Latest from the Network

Haj pilgrims to get sacred water cans on arrival
Riyadh, Aug 22 (IANS) Indian nationals will be provided sacred Zamzam water cans on their arrival in India from the Haj pilgrimage under a new agreement finalised between the Haj Committee of India and Saudi Arabian...
Read more on Politics Balla
 
Pakistan Senate extends support to PM Sharif
Islamabad, Aug 22 (IANS) Even as the protests against the government in Pakistan by two political parties continued, the country's Senate or upper house of parliament Friday unanimously passed a resolution rejecting...
Read more on Politics Balla
 
Somali militants behead abducted Kenyan driver
Nairobi, Aug 22 (IANS) Militants of the Al Shabaab extremist organisation Friday beheaded a Kenyan driver who was kidnapped at Kiunga near the border with Somalia in the coastal town of Lamu. The body of George Mwita...
Read more on Politics Balla
 
Fresh cases of Ebola recorded in Nigeria: Official
Abuja, Aug 22 (IANS) Fresh cases of the Ebola virus disease have been recorded in Nigeria, where the highly contagious disease has already claimed five lives, Minister of Health Onyebuchi Chukwu said Friday. The...
Read more on Business Balla
 
JD-U suspends its legislator for six years
Pat Aug 22 (IANS) Bihar's ruling Janata Dal-United (JD-U) Friday suspended its legislator Rajiv Ranjan from the party for six years. JD-U president Sharad Yadav suspended Rajiv as he was involved in anti-party...
Read more on Politics Balla
 
Malaysia receives bodies of MH17 victims on day of mourning
Bangkok, Aug 22 (IANS/EFE) Malaysia Friday paid tributes to victims of the Malaysia Airlines passenger plane which was shot down last month in eastern Ukraine, as the remains of 20 of the 43 countrymen on board were...
Read more on Politics Balla
 
PTI lawmakers quit National Assembly
Islamabad, Aug 22 (IANS) Lawmakers of the Imran Khan-led Pakistan Tehreek-i-Insaf (PTI) party Friday submitted their resignations from the National Assembly of Pakistan, the lower house of parliament. PTI leaders Shah...
Read more on Politics Balla
 
Indian junior squash team finishes sixth
Windhoek (Namibia), Aug 22 (IANS) India lost 1-2 to England to finish sixth in the World Junior team squash championship here. Four-time champions England made up for the shock of losing out on a semifinal place for...
Read more on Sport Balla
 
Ice bucket challenge hits B-Town, celebs get chills
Mumbai, Aug 22 (IANS) After amassing global popularity, the ALS ice bucket challenge, which involves dumping buckets of ice water over one's head to spread awareness for amyotrophic lateral sclerosis (ALS), or Lou...
Read more on Celebrity Balla
 
Spanish Primera Liga gets underway Saturday
Madrid, Aug 22 (IANS) Saturday sees the start of the new Spanish Primera Liga season with four games scheduled to be played on the opening day. All four matches take place in Andalusia, where the temperature will be...
Read more on Sport Balla