Coca-Cola Option Trade Could Return 5.6%, Boosting Stock's Yield
Generated by AI AgentWesley Park
Wednesday, Dec 11, 2024 9:17 am ET1min read
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As an investor, you might be drawn to the excitement and potential of options trading. However, it's essential to remember that not all investors seek thrills; some prefer the stability and predictability of "boring but lucrative" investments. Today, we'll explore a Coca-Cola option trade that could return 5.6%, boosting the stock's yield.
Coca-Cola (KO) has had a challenging few months, with its stock dropping 12% in three months. This decline has pushed the dividend yield up to 3.1% and lowered the beta to a mere 0.07. Despite the recent setback, Coca-Cola remains a dominant player in the nonalcoholic beverage industry, with a strong brand, innovation, and marketing prowess.
Income investors seeking to enhance the yield on this defensive stock could consider a covered call trade. A covered call strategy involves selling a call option while simultaneously owning the underlying stock. This approach reduces the risk on a long stock position while generating some premium income.
Let's examine a Coca-Cola covered call trade using a February 65-strike call option. Selling this option generates an income of 2.91% in just over two months, equating to around 11% annualized. This premium boosts the stock's yield to approximately 3.4%.
If Coca-Cola's stock price closes above $65 on the option's expiration date, the shares will be called away at that price. This scenario leaves the trader with a total profit of $345, representing a 5.59% return on the investment, or 27.94% annualized.
Covered call strategies can be an effective way to generate income, manage downside risk, and reduce the effective purchase price of a stock. However, it's crucial to remember that options trading is risky, and investors can lose 100% of their investment. Always conduct thorough research and consult a financial advisor before making any investment decisions.
In conclusion, a Coca-Cola option trade involving a February 65-strike call option could return 5.6%, boosting the stock's yield. This strategy offers a balance between potential return and risk, making it an attractive option for income-focused investors seeking stability and predictability.
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As an investor, you might be drawn to the excitement and potential of options trading. However, it's essential to remember that not all investors seek thrills; some prefer the stability and predictability of "boring but lucrative" investments. Today, we'll explore a Coca-Cola option trade that could return 5.6%, boosting the stock's yield.
Coca-Cola (KO) has had a challenging few months, with its stock dropping 12% in three months. This decline has pushed the dividend yield up to 3.1% and lowered the beta to a mere 0.07. Despite the recent setback, Coca-Cola remains a dominant player in the nonalcoholic beverage industry, with a strong brand, innovation, and marketing prowess.
Income investors seeking to enhance the yield on this defensive stock could consider a covered call trade. A covered call strategy involves selling a call option while simultaneously owning the underlying stock. This approach reduces the risk on a long stock position while generating some premium income.
Let's examine a Coca-Cola covered call trade using a February 65-strike call option. Selling this option generates an income of 2.91% in just over two months, equating to around 11% annualized. This premium boosts the stock's yield to approximately 3.4%.
If Coca-Cola's stock price closes above $65 on the option's expiration date, the shares will be called away at that price. This scenario leaves the trader with a total profit of $345, representing a 5.59% return on the investment, or 27.94% annualized.
Covered call strategies can be an effective way to generate income, manage downside risk, and reduce the effective purchase price of a stock. However, it's crucial to remember that options trading is risky, and investors can lose 100% of their investment. Always conduct thorough research and consult a financial advisor before making any investment decisions.
In conclusion, a Coca-Cola option trade involving a February 65-strike call option could return 5.6%, boosting the stock's yield. This strategy offers a balance between potential return and risk, making it an attractive option for income-focused investors seeking stability and predictability.
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