Shareholders of
Raytheon
Co. (NYSE: RTN) looking to boost their income beyond the stock's 2.7% annualized dividend yield can sell the January 2017 covered call at the $110 strike and collect the premium based on the $4.80 bid, which annualizes to an additional 3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5.7% annualized rate in the scenario where the stock is not called away. Any upside above $110 would be lost if the stock rises there and is called away, but RTN shares would have to climb 9.6% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 14.4% return from this trading level, in addition to any dividends collected before the stock was called.
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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 Raytheon Co., looking at the dividend history chart for RTN 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 2.7% annualized dividend yield.
Below is a chart showing RTN's trailing twelve month trading history, with the $110 strike highlighted in red:
Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Raytheon Co. (considering the last 252 trading day closing values as well as today's price of $100.24) to be 18%. For other call options contract ideas at the various different available expirations, visit the Find out which 15 call and put options traders are talking about today.
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