AT&T Collecting Premium Income On Top Of This 7%+ Yielder
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Today we are diving into writing some more puts on AT&T (T). T is taking a bit of a hit today - along with the rest of the market. Moves down mean that put premiums are rising. The moves lower for the broader market seem to be stemming from the worse-than-expected jobless claims. Walmart (WMT) also wasn’t offering an encouraging forecast.
(Source - Google Finance)
So we will take the opportunity to collect some premium on T. With this one I went with the March 5th, 2021 $28.50 strike price. At the time of the trade, I collected $0.24 or $24 per contract.
Thus, our breakeven is $28.26. If we trade below that by expiration date we will be assigned 100 shares (per contract) of T.
(Source - Fidelity)
Fidelity’s probability graph tells us that the chances of this happening are in our favor, that it won’t fall below this price. Of course, any bad news from the broader market or T itself could send the name lower.
This option contract expires in 15 days. We are collecting $24 and “risking” $2850 or could make a return of 0.84% in 15 days. Annualizing that figure if we could do this trade every 15 days would result in a return of 20.44%.
Additionally, I wouldn’t consider us risking $2850 - as that would imply that shares of T go all the way to $0 overnight and we lose everything. I believe the chances of this are slim to none.
As always mentioned - one should only write puts on stocks that you don’t mind holding potentially long-term. The possibility of being assigned is always there. For T I’m not too concerned with this fact.
They are a high dividend yielder - though the disappointing news was they didn’t raise their dividend when they historically would have.
(Source - Seeking Alpha)
Instead, saving this cash as they are hoping to use that money instead for debt reduction. Which I’m all for as the albatross around their neck was this immense debt burden. This came about after several large and questionable acquisitions. I understand they had to do something to try to drive shareholder returns; I just didn’t suspect buying dying businesses was the way to achieve it. And what do you know - they now want to get rid of DirecTV.
(Source)
Disclosure: Long T
This is not investment advice but for entertainment purposes only. Any decision to buy or sell is solely made by that individual. Speak with a financial professional to develop an investing plan that is right for your own objectives and goals.