5 Stocks with Juicy Call Premiums
10/13/2011 8:00 am EST
Option sellers can take advantage of elevated premiums in today’s volatile market, and these 5 stocks have all seen particularly large spikes in call open interest activity in recent weeks as a result.
Looking for a way to boost the income from your dividend stocks? One way, according to Fortune, is to sell call options on the dividend-paying stocks that you own.
This is how it works: selling a call option on a stock you own allows someone else (the call option buyer) to buy your stock at a higher price than today’s at a future date (which the buyer would only do if the stock rises above the set price, called the “strike price”). For selling the call option, you, the seller, get paid a premium that can be considered additional income.
If the stock does not rise above the strike price, you keep your stock and the premium. If the stock rises above the strike price, you sell your stock at the strike price, which cuts off upward profit potential, but you still keep your premium.
See related: How to Sell Options for Income
It’s a particularly good time for this investment strategy. The value of options (and therefore, the premium you would receive for selling a call option) increases with stock volatility, and the VIX index has been highly elevated for the past couple of months.
“It’s a strategy that can improve your odds of success and provide superior returns over time,” Michael Khouw, director of equity derivatives trading at Cantor Fitzgerald, said to Fortune.
To help you explore this topic, we collected data on about 150 stocks that have seen a sharp increase in the number of call options relative to put options over the last two weeks.
To express this relationship, we’ll use the put/call ratio (i.e. all the stocks have seen declining put/call ratios over the last two weeks).
In addition, all of the stocks mentioned below have proven themselves to be more profitable than their industry competitors.
There has been a significant increase in the call option open interest on these highly profitable names. Do you think any of these stocks is worth a closer look?
Use this list only as a starting point for your own analysis:
Bancolombia S.A. (CIB) provides financial products and services to individual and corporate customers in Colombia, Panama, El Salvador, Puerto Rico, the Cayman Islands, Peru, Brazil, the United States, and Spain. Over the last two weeks, the stock's open interest put/call ratio changed from 3.08 to 0.36 (a change of -88.31%).
QEP Resources, Inc. (QEP) operates as an independent natural gas and oil exploration and production company. Over the last two weeks, the stock's open interest put/call ratio changed from 0.34 to 0.07 (a change of -79.41%).
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STR Holdings, Inc. (STRI) engages in the manufacture and sale of encapsulates to the solar module industry. Over the last two weeks, the stock's open interest put/call ratio changed from 0.93 to 0.31 (a change of -66.67%).
McCormick & Co. Inc. (MKC) engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide. Over the last two weeks, the stock's open interest put/call ratio changed from 0.21 to 0.08 (a change of -61.90%).
NBT Bancorp, Inc. (NBTB) provides commercial banking and financial services to individuals, corporations, and municipalities in central and upstate New York, northeastern Pennsylvania, and the greater Burlington, Vermont area. Over the last two weeks, the stock's open interest put/call ratio changed from 0.24 to 0.11 (a change of -54.17%).
By Alexander Crawford and the Staff at Kapitall.com