Hitting The Supermarket For 58% Annualized Return Potential With Albertsons Buy Write

This options-selling trade on shares of supermarket owner Albertsons
ACI
Companies (ACI) does not involve a dividend, but it does offer the opportunity to earn 6% over the next 38 days, which works out to 58% on an annualized basis. Please email me ([email protected]) at any time with questions about trades, past positions, or how to use Forbes Premium Income Report, –– J.D.

Albertsons Companies (ACI) – Buy Write

Buy 100 ACI

Sell to Open 1 September 16 $29 Call

Execute for Net Debit of $27.35 or lower

Boise, Idaho-based Albertsons Companies (ACI) is a leading U.S. food and drug retailer, operating 2,252 grocery stores, 1,726 pharmacies, 402 gas stations, 22 distribution centers and 20 manufacturing facilities in 34 states and D.C. Store brands include Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, and Tom Thumb.

Revenue this year is expected to grow 6% to $76.1 billion, although earnings are expected to decline 6% to $2.90 per share. The next earnings report and ex-dividend date are both not coming up until late October.

Buying the stock at the same time you sell call options on it is called a buy write, and today’s involves buying the stock for $28.45 and selling $29 call options that expire September 16. By taking this money for selling the calls, we agree to sell our ACI shares at $29 anytime until expiration, although if the stock stays below that price, nobody would demand to buy it from us at a higher price.

Here is the buy write: Buy 100 ACI ($28.44 current price), and sell to open one contract of $29 September 16 calls. Placing your order as a combined buy write, use a net debit of $27.35 or lower. You may get it done for $27.30. The net debit is the price paid for the stock, minus premium earned for selling the calls.

For today’s buy write, if you do it for a $27.35 net debit, there is the potential to earn $1.65 per share on $27.35 per share at risk, for a total return of 6%. This happens if ACI closes above $29 on September 16. Over a 38-day holding period, the annualized return would be 58%. If the stock closes at or below $29 at expiration, we would still own it at a cost basis of $27.35 per share, reflecting the premium earned today.

Options income for this trade: We earn $115 selling 1 September 16 $29 call contract. Click here for updated bid-ask and return characteristics.

John Dobosz is editor of Forbes Dividend Investor, which provides a weekly portfolio of high-yielding, value-priced income stocks, REITs and MLPs, and Forbes Premium Income Report, which sends out options-selling trade recommendations on two dividend-paying stocks every Tuesday and Thursday.