Interesting August Stock Options for UTX

May 12 2014, 11:41am CDT | by

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

The put contract our YieldBoost algorithm identified as particularly interesting, is at the $110 strike, which has a bid at the time of this writing of $1.46. Collecting that bid as the premium represents a 1.3% return against the $110 commitment, or a 5% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Click here to find out the Top YieldBoost UTX Puts »

Selling a put does not give an investor access to UTX’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 United Technologies Corp. sees its shares decline 7.1% and the contract is exercised (resulting in a cost basis of $108.54 per share before broker commissions, subtracting the $1.46 from $110), the only upside to the put seller is from collecting that premium for the 5% annualized rate of return.

Worth considering, is that the annualized 5% figure actually exceeds the 2% annualized dividend paid by United Technologies Corp. by 3%, based on the current share price of $118.48. 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 fall 7.13% to reach the $110 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 United Technologies Corp., looking at the dividend history chart for UTX 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% annualized dividend yield.

Turning to the other side of the option chain, we highlight one call contract of particular interest for the August expiration, for shareholders of United Technologies Corp. (NYSE: UTX) looking to boost their income beyond the stock’s 2% annualized dividend yield. Selling the covered call at the $120 strike and collecting the premium based on the $2.62 bid, annualizes to an additional 8.4% 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 10.4% annualized rate in the scenario where the stock is not called away. Any upside above $120 would be lost if the stock rises there and is called away, but UTX shares would have to advance 1.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 3.5% return from this trading level, in addition to any dividends collected before the stock was called.

Click here to find out the Top YieldBoost UTX Calls »

The chart below shows the trailing twelve month trading history for United Technologies Corp., highlighting in green where the $110 strike is located relative to that history, and highlighting the $120 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 August 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 United Technologies Corp. (considering the last 251 trading day UTX historical stock prices using closing values, as well as today’s price of $118.48) 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

The Black Friday 2014 Sales You can Shop Today 11/26
The Black Friday 2014 Sales You can Shop Today 11/26
Over 20 Black Friday 2014 sales are already launched. Get the deals early to get your head free for the hard to get Black Friday deals to be released on Thanksgiving Day.
 
 
Pakistan blocks three Saarc connectivity pacts; Modi, Sharif avoid meeting (Roundup)
Kathmandu, Nov 26 (IANS) Pakistan Wednesday played spoilsport by blocking three major Saarc connectivity projects initiated by India, even as Indian Prime Minister Narendra Modi conspicuously avoided meeting his Pakistani counterpart Nawaz Sharif while he met five other South Asian leaders here.
 
 
One-third of Libyans suffer mental health problems: Report
Tripoli, Nov 26 (IANS) Human rights violations in Libya have left nearly a third of the population suffering from mental health problems, according to a new report.
 
 
1.7 kg of drugs found in Iranian's stomach
Tehran, Nov 26 (IANS) Narcotics weighing 1.7 kg have been found in the stomach of a 20-year-old man in Iran's northeastern Khorasan Razavi province, police said.
 
 
 

Latest from the Network

The Black Friday 2014 Sales You can Shop Today 11/26
While most Black Friday 2014 ads state that Black Friday 2014 sales start on Thanksgiving Day, we are already seeing more than 20 Black Friday sales that are live online and even several that launched in stores. The...
Read more on Celebrity Balla
 
Tori Spelling wants to display breast implants
Tori Spelling wants to get her breast implants removed and display them in a glass dome on her wall. The 41-year-old reality TV star is keen to have her fake boobs taken out because they have ''expired and recalled''...
Read more on Celebrity Balla
 
Prince leaves social media
Prince has removed himself from social media. The 'Little Red Corvette' hitmaker has deleted his Instagram, Twitter and Facebook accounts and removed his work from YouTube and Soundcloud, just a year after joining the...
Read more on Celebrity Balla
 
Party-pooper Pharrell Williams
Pharrell Williams says asking him if he wants to go out partying is like asking a McDonalds worker ''if they want chicken nuggets for dinner''. Despite being a successful singer, the 41-year-old star insists he's not a...
Read more on Celebrity Balla
 
43 IS militants killed in clashes with Iraqi Kurds
Mosul (Iraq), Nov 26 (IANS/EFE) At least 43 members of the Islamic State (IS) Sunni radical group were killed in clashes with Peshmerga Kurdish troops near the strategic Mosul Dam near the northern Iraqi city by that...
Read more on Politics Balla
 
Five soldiers killed in Yemen Al Qaeda attack
Sanaa, Nov 26 (IANS) Five soldiers were killed in a massive attack by suspected Al Qaeda miltants against a Yemeni military base in the southeastern province of Shabwa Wednesday, a police source said. The source told...
Read more on Politics Balla
 
Pakistan blocks three Saarc connectivity pacts; Modi, Sharif avoid meeting (Roundup)
Kathmandu, Nov 26 (IANS) Pakistan Wednesday played spoilsport by blocking three major Saarc connectivity projects initiated by India, even as Indian Prime Minister Narendra Modi conspicuously avoided meeting his...
Read more on Politics Balla
 
IS pamphlets distributed in Pakistan
Islamabad, Nov 26 (IANS) Unidentified people have distributed pamphlets of the Islamic State (IS) Sunni radical group in Pakistan's South Waziristan tribal region, residents who have seen the pamphlets said Wednesday...
Read more on Politics Balla
 
Three policemen shot dead in Egypt's Sinai
Cairo, Nov 26 (IANS) A police officer and two recruits were shot dead Wednesday by unidentified gunmen in Arish city in North Sinai province, a security source told Xinhua. "The militants set an ambush for a police...
Read more on Politics Balla
 
Ferguson burns as racial protests spread across US
Washington, Nov 26 (IANS) As night fell, Missouri state in midwestern United States deployed more security forces to quell violence in Ferguson after a grand jury failed to indict a white police officer in the August...
Read more on Politics Balla