June 3, 2020
Sell IIPR July 17 $95 call at $3 or higher
Expiration date: July 17
Strike price: $95
Call price: $3 or higher
The stock price has moved 6.8% higher over the last week and 19.4% higher over the last month. The upward momentum in the stock has lifted the sale price. The stock is currently just below $90 per share. The strike price of $95 provides a fair amount of upside.
The first issue of Cabot Income Advisor just came out yesterday. The idea is to sell a covered call, meaning you already own or you just purchased IIPR on the buy recommendation. A single call option represents 100 shares of the stock. I suggest you sell the amount of call options that reflect your underlying stock position. For example, if you own 500 shares of IIPR, sell 5 calls.
I will assume you purchased the stock at $90 per share. Here are the return possibilities.
1. The stock goes above $95
Call premium: $3.10
Dividend: $1.23 (the pay date is July 14th)
Appreciation: $5 ($95 strike price minus $90 purchase price)
Total: $9.33 (total return will be 10.37% in six weeks)
2. The stock price stays the same
Call premium: $3.10
Dividend: $1.23
Total: $4.33 (total return will be 4.81% in six weeks)
3. The stock price declines
You will be down by how ever much the stock is down less the $4.33 from the dividend and the call. And the position will live to pay more dividends and write more calls in the future.