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How To YieldBoost B&G Foods From 5.4% To 26.5% Using Options

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Shareholders of B&G Foods Inc (NYSE:BGS) looking to boost their income beyond the stock's 5.4% annualized dividend yield can sell the May covered call at the $40 strike and collect the premium based on the $2.40 bid, which annualizes to an additional 21.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 26.5% annualized rate in the scenario where the stock is not called away. Any upside above $40 would be lost if the stock rises there and is called away, but BGS shares would have to climb 10.8% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 17.4% return from this trading level, in addition to any dividends collected before the stock was called.

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In general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of B&G Foods Inc, looking at the dividend history chart for BGS below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 5.4% annualized dividend yield.

Below is a chart showing BGS's trailing twelve month trading history, with the $40 strike highlighted in red:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the May covered call at the $40 strike gives good reward for the risk of having given away the upside beyond $40. (Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for B&G Foods Inc (considering the last 252 trading day closing values as well as today's price of $35.01) to be 63%. For other call options contract ideas at the various different available expirations, visit the BGS Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Tuesday, the put volume among S&P 500 components was 1.44M contracts, with call volume at 3.53M, for a put:call ratio of 0.41 so far for the day. Compared to the long-term median put:call ratio of .65, that represents very high call volume relative to puts; in other words, buyers are preferring calls in options trading so far today. Find out which 15 call and put options traders are talking about today.

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