Opening a buy/write in Dolby (DLB)

music selection: “Like The Way I Do” — Melissa Etheridge

weigh-in:  200.0 +1.8 – doh!  Way too much Super Bowl eating

Dolby (DLB) got started reducing the hiss created on music playback.  Today, they are a technology powerhouse with 9,300 patents and 4,100 more pending.  The company is leading in augmented and virtual reality, advanced video and compression, and other technologies.  It earns a steep 89% gross margin.  And trades for a mere 25 P/E despite high single digit sales growth.  The company is stable and has a great future.  It holds zero debt and is a dividend grower.  I’m doing a buy/write trade today to establish a covered call for income.

I opened my position this morning with the purchase of 100 shares of DLB at 44.88.  I further sold a covered call against the position.  I sold DLB190215C00065000 for 88 cents a share.  The trade will be in force for 12 days and yields an expected 30.49% on an annualized basis.  Should shares be called away (and it is likely), I will earn an additional 12 cents in short term capital gains bringing the annualized yield up to 46.88%.  If I keep shares, I will write additional calls for more income while waiting on the underlying distribution of 1.17%.  And that yield has been steadily growing.  I feel very good about my prospects here.

Devour your prey raptors!

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Covered Call Dolby (DLB) – yield up to 46.88%

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2 thoughts on “Covered Call Dolby (DLB) – yield up to 46.88%

  • February 4, 2019 at 6:49 pm
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    Do you pick a covered call strike price by finding the lowest price at which assignment would yield more than non-assignment? E.g. lowest strike price where strike price minus current price is greater than call premium? If so, that’s an interesting algorithm.

    Reply
    • February 5, 2019 at 1:31 am
      Permalink

      You propose an interesting study. In this case, I picked the nearest OTM strike. Maybe that was a little lazy. The annualized return was really good for a low Beta stock and I didn’t want to pass it up!

      Reply

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