YieldBoost CDW To 13.9% Using Options

The article details a potential covered call strategy for CDW Corp, suggesting selling December $180 strike calls given the stock's 33% trailing twelve-month volatility and current trading price of $173.02, alongside its 1.4% annualized dividend yield. This analysis is presented within a broader market context where S&P 500 options trading shows a significant preference for calls, evidenced by a put:call ratio of 0.52, notably below the long-term median of 0.65.

Analysis

CDW Corp (CDW) is presented as a candidate for a covered call options strategy, specifically involving the sale of December calls at a $180 strike price while the stock trades at $173.02. The analysis hinges on the stock's significant trailing twelve-month volatility of 33%, which can influence the premium received for selling the option. This strategy offers a way to generate income, augmented by the company's 1.4% annualized dividend yield, though the article cautions that dividend sustainability is dependent on corporate profitability. The decision to cap potential upside at $180 is framed as a key risk-reward consideration for shareholders. This individual stock strategy is set against a backdrop of broad market bullishness, evidenced by a low S&P 500 put-call ratio of 0.52, which is substantially below the long-term median of 0.65 and indicates a strong preference for call options among traders.

Key Decisions for Investors

• Investors holding CDW could evaluate selling the December $180 strike covered call to generate income, carefully weighing the option premium against the risk of forfeiting gains if the stock rallies past $180.
• The 1.4% dividend yield should be monitored closely, as its reliability is tied directly to company profitability, adding a fundamental risk factor for income-focused portfolios.
• While the bullish broader market sentiment suggested by the low put-call ratio may support equity prices, investors should recognize that a covered call on CDW will underperform in a strong market rally that drives the stock significantly above the $180 strike.
• Utilize the 33% historical volatility figure as a key input for pricing the option and determining if the potential reward from the call premium adequately compensates for the risk of having the shares called away.