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Income Advisor
Conservative investing. Double-digit income.

December 11, 2020

Sell BGS February 19 $27.50 call at $2.40 or better

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.

  1. 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)
  1. 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.
  1. 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.
Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.