Arista Networks (ANET) is a highly rated stock that is holding up well during the recent market weakness. Income investors who want to generate some option premium on Arista stock could look at a covered call trade.
A covered-call strategy is one way to slightly reduce the risk on a long stock position while also generating some option premium. The catch: a limited upside above the covered-call strike.
Let's look at how a covered-call trade on Arista might take shape.
Buying 100 shares of Arista Networks would cost around $19,800. An Oct. 16, 200-strike call option is trading around $10.25 a share, generating $1,025 in option premium per contract. Selling the call option generates an income of 5.2% in one month, equaling around 61% annualized.
If Arista Networks stock closes above 200 on the expiration date, the shares will be called away at 200, leaving the trader with a total profit of $1,225. That counts as the $200 gain on shares plus the $1,025 option premium received.
#option
A covered-call strategy is one way to slightly reduce the risk on a long stock position while also generating some option premium. The catch: a limited upside above the covered-call strike.
Let's look at how a covered-call trade on Arista might take shape.
Buying 100 shares of Arista Networks would cost around $19,800. An Oct. 16, 200-strike call option is trading around $10.25 a share, generating $1,025 in option premium per contract. Selling the call option generates an income of 5.2% in one month, equaling around 61% annualized.
If Arista Networks stock closes above 200 on the expiration date, the shares will be called away at 200, leaving the trader with a total profit of $1,225. That counts as the $200 gain on shares plus the $1,025 option premium received.
#option
2 months ago
