Boost Alight's Yield to 11.4% with Covered Calls

Alight Inc. shareholders can boost their income by selling the January 2027 covered call at $5 and collecting a premium based on the 40 cents bid, annualizing to an additional 7.3% rate of return. This would bring the total annualized rate to 11.4%. However, if the stock rises to $5 and is called away, any upside above $5 would be lost.

Alight Inc. shareholders are exploring ways to enhance their income beyond the stock's 4.1% annualized dividend yield. One strategy gaining traction is selling the January 2027 covered call at the $5 strike price. This option, with a 40 cents bid, annualizes to an additional 7.3% rate of return, bringing the total annualized rate to 11.4% [1]. However, if the stock rises to $5 and is called away, any upside above $5 would be lost.

The strategy leverages Alight Inc.'s historical volatility, which has been calculated to be 46% over the trailing twelve months. This volatility provides opportunities for premium collection through options trading. The covered call strategy involves selling call options against a long stock position, generating income from the premium received while the underlying stock acts as a hedge against the short call [1].

For investors considering this strategy, it is crucial to assess the potential risks. The primary risk is the assignment of the call option, where the stock price exceeds the strike price, forcing the investor to sell at that price. In the case of Alight Inc., the stock would need to advance 28.2% from current levels for this to happen, resulting in a 38.5% return on the trade level [1]. Additionally, dividend amounts are not always predictable and can vary based on the company's profitability.

Investors should also consider the broader market context. Currently, call volume among S&P 500 components is relatively high compared to put volume, indicating a preference for call options in the market [1]. This dynamic suggests that options traders are positioning themselves to benefit from potential upside movements in the stock market.

In summary, Alight Inc. shareholders can potentially boost their income by selling the January 2027 covered call at the $5 strike. However, this strategy involves risks and should be carefully considered in the context of the company's fundamentals and broader market conditions.

References:
[1] https://www.nasdaq.com/articles/yieldboost-alight-41-114-using-options
[2] https://www.ainvest.com/news/generating-synthetic-income-tesla-stock-long-term-covered-calls-2508/
[3] https://www.barchart.com/story/news/34242494/2-outstanding-strong-buy-stocks-to-grab-in-august