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How To YieldBoost JKHY From 1.3% To 9.5% Using Options

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Shareholders of Jack Henry & Associates, Inc. (NASDAQ:JKHY) looking to boost their income beyond the stock's 1.3% annualized dividend yield can sell the November covered call at the $180 strike and collect the premium based on the $8.30 bid, which annualizes to an additional 8.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.5% annualized rate in the scenario where the stock is not called away. Any upside above $180 would be lost if the stock rises there and is called away, but JKHY shares would have to advance 6.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 11.1% return from this trading level, in addition to any dividends collected before the stock was called.

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In general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of Jack Henry & Associates, Inc., looking at the dividend history chart for JKHY below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 1.3% annualized dividend yield.

Below is a chart showing JKHY's trailing twelve month trading history, with the $180 strike highlighted in red:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the November covered call at the $180 strike gives good reward for the risk of having given away the upside beyond $180. (Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Jack Henry & Associates, Inc. (considering the last 251 trading day closing values as well as today's price of $169.43) to be 22%. For other call options contract ideas at the various different available expirations, visit the JKHY Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 583,479 contracts, with call volume at 997,168, for a put:call ratio of 0.59 so far for the day. Compared to the long-term median put:call ratio of .65, that represents high call volume relative to puts; in other words, buyers are showing a preference for calls in options trading so far today. Find out which 15 call and put options traders are talking about today.