Herc Holdings Offers Attractive Call Options for Income Boost

Investors in Herc Holdings Inc (HRI) can enhance returns with a covered call strategy. The stock's current options provide an opportunity for an additional 11.3% yield, potentially reaching a total of 12.5% annualized return, contingent on stock performance.

Date: 24-01-2025

AI Rating: 7

Analysis of Herc Holdings' Covered Call Strategy

This report highlights a strategy for investors holding shares in Herc Holdings Inc (HRI) to increase returns through active options trading. Investors are advised to consider selling covered calls at the $230 strike price, which offers a significant premium based on the current bid of $21.00, representing an annualized yield boost of 11.3%. Additionally, if the stock price rises and the option is executed, shareholders could realize a total return of 21.2% stemming from the stock price increase and dividends collected before the call option is exercised.

It's important to note that while the potential for 1.3% annualized dividend yield is presented, dividends are not guaranteed and tend to move in accordance with the company's profitability. Analyzing HRI’s dividend history may provide insights regarding the sustainability of the current yield.

Regarding volatility, the trailing twelve month volatility for HRI is noted to be 43% based on historical trading prices. This information can assist investors in understanding the risk-reward balance when selling covered calls, particularly as they must be aware of the stock's price movements in relation to the strike price.

The report also mentions current trends in options trading within the S&P 500, with a put-to-call ratio of 0.47, suggesting a strong preference among traders for call options on this day. This could signal positive sentiment among investors and may contribute to upward pressure on stock prices. Therefore, Herc Holdings' shareholders looking to maximize returns can consider this strategy despite the inherent risks in options trading.

Stocks: HRI