Sell BGS February 19 $27.50 call at $2.40 or better
Expiration date: February 19th
Strike price: $27.50
Call price: $2.40
B&G Foods (BGS) has recently rallied as the virus situation gets worse in the near term. The calls are written slightly in-the-money in order to lock in a higher call premium while the stock is having a good time of it. The worsening virus situation is likely temporary and will give way to the vaccine excitement as it becomes available. We can lock in a good income return while the stock is riding high.
- The stock closes above $27.50 at expiration
- Call premium: $2.40
- Dividend: $0.47 (the ex date is December 30th)
- Appreciation: $0.71 ($27.50 strike price minus $26.74 purchase price)
- Total: $3.58 (total return will be 13.5% in three and a half months)
- The stock price closes below but near our $27.50 strike price.
- Call premium: $2.40
- Dividend: $0.47
- Total: $2.87, giving us a total income return of 10.25% in three and a half months.
- The stock price declines.
- You will still be down in the stock temporarily, but the decline will be offset by the $2.87 in income. But the stock is in a longer term uptrend and we will get an opportunity to ring the register by writing more calls in the future, as well as more dividends.
