Forbes contributor, StockOptionChannel.com, came out with a post a few days ago that I felt compelled to expand upon for you. The contributor has a wealth of knowledge, offers solid analysis (most of the time), and sound option trading tips on how to boost your returns with option trading. But, this recent post is off the mark, in my opinion.
Option Trading Tips on CCG Covered Call
First, read the beginning of the post, “How To YieldBoost Campus Crest Communities To 16.3% Using Options” -
Shareholders of Campus Crest Communities, Inc. (NYSE: CCG) looking to boost their income beyond the stock’s 7.9% annualized dividend yield can sell the December covered call at the $10 strike and collect the premium based on the 25 cents bid, which annualizes to an additional 8.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.3% annualized rate in the scenario where the stock is not called away. Any upside above $10 would be lost if the stock rises there and is called away, but CCG shares would have to climb 19.
When I was a kid, my dad told me this story about some young lumberjack wandered into a logging camp inquiring about a job. He got hired on and pretty soon he worked his way up to being one of the top lumberjacks in his camp. He got so good, that lumberjacks used to bet him money over who could chop down the most trees in a given day. He took every challenge and won.
Over time, news spread to the surrounding camps and new challengers came calling. He took every challenge and, again, won every challenge by cutting down more trees than any other lumberjack in the surrounding area.
With no one left to challenge him, he settled into life in the logging camp.
One day, an old man came looking for him and challenged him.
The big, burly young lumberjack laughed and said he didn’t have a chance and to go back home before he got hurt.
The old man pulled out a wad of money and reissued his challenge and bet him dollar for dollar that he could chop down more trees than him during a day’s work.