YieldBoost MCRI From 1.2% To 54.2% Using Options

Shareholders of Monarch Casino & Resort, Inc. (Symbol: MCRI) looking to boost their income beyond the stock's 1.2% annualized dividend yield can sell the July covered call at the $120 strike and collect the premium based on the 15 cents bid, which annualizes to an additional 53% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 54.2% 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 MCRI shares would have to climb 16.3% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16.4% return from this trading level, in addition to any dividends collected before the stock was called.

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 Monarch Casino & Resort, Inc., looking at the dividend history chart for MCRI 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 1.2% annualized dividend yield.

Below is a chart showing MCRI's trailing twelve month trading history, with the $120 strike highlighted 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 July covered call at the $120 strike gives good reward for the risk of having given away the upside beyond $120. (Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Monarch Casino & Resort, Inc. (considering the last 250 trading day closing values as well as today's price of $102.84) to be 31%. For other call options contract ideas at the various different available expirations, visit the MCRI Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 620,594 contracts, with call volume at 1.37M, for a put:call ratio of 0.45 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.

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