by Robert Hauver
Although we normally cover dividend paying stocks which also have options, this article focuses on a dividend stock that has already paid its annual dividend. However, as you’ll see below, its options yields heavily eclipse its dividends.
Sitting up at the top of our free Covered Calls Table is Himax Technologies, (HIMX), a semiconductor stock, which currently has a call option yield of nearly 14% for its December $9.00 call options. Although HIMX already went ex-dividend for its annual dividend in July, this Dec. covered call trade pays over 4 times HIMX’s annual $.25 dividend:
Since there aren’t dividends involved, there are two main scenarios for this trade:
A) Static – You’ll collect $1.15 in call options premium now, and keep your shares of HIMX, if it doesn’t rise above the $9.00 call price between the time of the trade and its December 2013 expiration.
B) Assigned – If HIMX does rise above the $9.00 call price between the time of the trade and its December 2013 expiration, your HIMX shares will be assigned/sold, but you will receive an additional $.53 in price gain, (the difference between the $9.00 strike price and HIMX’s $8.47 price/share).
HIMX also has very attractive put options. This December trade, from our Cash Secured Puts Table, pays just over 4 times HIMX’s $.25 dividend, and it offers a breakeven cost that is 18% below HIMX’s $8.47 cost per share. Considering that this stock has gained over 250% year-to-date, selling puts below its share price may be even more appealing than selling covered calls:
A big turnaround in earnings: HIMX has had negative earnings growth over the past 5 years…
…but this has reversed itself rapidly during the most recent 4 quarters:
Analysts are predicting big Earnings growth for HIMX in 2014, due to its quickly developing relationship with Google, which has invested in HIMX’s subsidiary, Himax Display, in order to lock in HIMX as a supplier of LCOS modules for Google Glasses. Even after its huge price gains this year, HIMX still looks undervalued on a forward PEG basis, as it has a very low 2014 PEG of .34:
Additional Valuations: HIMX’s Price/Tangible Book is higher than its Industry averages, but its Price/Sales is lower.
Financials: HIMX has much better Mgt. Efficiency ratios, a higher Operating Margin, and lower debt, than its peers:
Author: Robert Hauver, copyright 2013 DeMar Marketing, All Rights Reserved.
Disclosure: Author was long HIMX shares and short HIMX put options at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.