Fastenal Buy Write Nails Down Dividend, 51% Annualized Return Potential

Screw and bolt supplier Fastenal
FAST
(FAST) reported quarterly earnings this morning that exceeded expectations. The stock is trading up 3.5%. There is an ex-dividend date coming up in less than two weeks on October 26 for a $0.31 per share payout.

If you don’t own FAST, a buy write looks attractive today and has the potential to generate a 51.5% annualized return through November 18.

Fastenal (FAST) – Buy Write

Buy 100 FAST

Sell to Open 1 November 18 $47.50 Call

Execute for Net Debit of $45.50 or lower

Winona, Minn.-based Fastenal (FAST) is one of the largest distributors of fasteners (screws, bolts and other fastening devices), tools, and supplies used in manufacturing, building, personnel protection, and facilities maintenance. The company today reported third-quarter results that were higher than analysts’ profit and revenue expectations. The stock is getting a lift after the results.

Insiders, including the CEO, were buyers of the stock last month near current prices. Fastenal earlier this month declared a $0.31 per share dividend, with an ex-dividend date of October 26. We will sell November calls at the $47.50 strike price.

Here is the buy write: Buy 100 FAST, and sell to open one contract of $47.50 November 18 calls. For the combined buy write order, use a net debit (stock price minus premium) of $45.50 or lower.

For the buy write, if you earn the dividend on October 26, and if FAST closes above $47.50 at expiration, your stock would be sold automatically and you’d earn a total return of $2.31 per share on $45.50 at risk, or 5.08%. Over a 36-day period, that would be 51.5% on an annualized basis. If FAST closes at or below $47.50 on November 18, you would continue to own it at a cost basis of $45.19 per share, reflecting the premium earned today, plus the dividend later this month.

Options income for this trade: You earn $185 selling 1 FAST November 18 $47.50 call contract. Click here for updated bid-ask and return characteristics.

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