Last Tuesday, shares of insurance provider Unum Group (UNM) jumped after the company reported better than expected quarterly revenue and earnings. The stock is still very appealing from a value perspective and a fresh buy write on the shares looks attractive today. Read below for details.
Unum Group (UNM) – Buy Write
Buy 100 UNM
Sell to Open 1 September 16 $37.50 Call
Execute for Net Debit of $35.55 or lower
Chattanooga, Tenn.-based Unum Group (UNM) is the largest domestic disability insurer, with the majority of premiums generated from employer plans. The company also offers long-term care insurance, life insurance, and employer- and employee-paid group benefits. a provider of group and individual income protection insurance products in the United States and the United Kingdom.
One week ago, Unum reported quarterly results that exceeded analysts’ profit and revenue estimates, and it also raised its full-year earnings guidance. For the year, revenue is expected to rise 1.4% to $12.1 billion, with earnings jumping 36% to $5.91 per share, giving the stock a forward price-earnings ratio of 6.0, just slightly above its five year average P/E of 5.9.
Unum yields 3.6% but the ex-dividend date for the next $0.33 is not until late October.
With the stock’s recent positive price performance, call options are richly-priced. We will sell $37.50 calls that expire on September 16, which now change hands at $1.30. By selling these calls, we surrender any upside above $37.50 until September 16, but we put $1.30 in our pocket today.
Here is the buy write: Buy 100 shares of UNM ($36.82 current price), and sell to open one contract of $37.50 September 16 calls. Use a net debit of $35.55 or lower for the trade. What this means is that you are willing to pay up to $35.55 for buying one share of stock and selling one of the indicated call options.
For the buy write, if UNM closes above $37.50 in 38 days at expiration, the profit would be $1.95 per share on $35.55 at risk, or 5.5%. The annualized return, which you calculate by multiplying that return by 365 and dividing by the number of days in the position, would be 52.7%.
If Unum Group shares close at or below $37.50 on September 16, we will still own them at a cost basis of $35.55 per share.
Options income for this trade: We earn $130 selling 1 UNM September 16 $37.50 call contract. See updated options quote and potential 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.
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