AT&T looks delicious with a 5.70% current yield. Add in dividend increases and share buybacks over time and you have a cash machine. But we can do better. And today, we are going to play both ends against the middle for maximum income and risk reduction. T has been under some pressure lately from competitors that are lowing price to gain share. The company is however well placed to gain greater share of the customer through its television, landline, and internet offerings. These are all high margin businesses.
A strangle involves buying half a position (in 100 share lots) of the underlying and writing puts AND calls at the same time. This way, you are guaranteed that no more than one of your options can be exercised. I am buying shares at 33.26. I am also writing both T150522P00033000 and T150522C00035000. This makes it possible to buy more shares cheap or sell my current shares dearly if the price rockets above 35.
The put is paying .88 and the call is paying .18. That comes out to 19.81% annualized on the put and 4.02% on the call. The upside is capped at 35 where annualized return would be 42.88% (this is, of course, unlikely to be realized.) At any rate, the low end return when adding the put and call together is 23.83% with more possible.
Devour your prey raptors!