Steelcase Calls Offer 69% Annualized Return

Michigan furniture and interior design company Steelcase reports earnings next month, and the stock currently trades about 2% below the $12.50 level. The premium in the $12.50 calls expiring September 16 looks plump, providing a very nice setup for a buy write as outlined below. Please email me ([email protected]) at any time with questions about how to use Forbes Premium Income Report. — J.D.

Steelcase (SCS) – Buy Write

Buy 400 SCS

Sell to Open 4 September 16 $12.50 Calls

Execute for Net Debit of $11.85 or lower

Founded in 1912, Grand Rapids, Mich.-based Steelcase (SCS) designs and sells furniture and interior architectural design products. Its main emphasis is on seating, and its lineup of brands includes Steelcase, Coalesse, Designtex, PolyVision and Turnstone.

Steelcase trades at discounted valuations relative to history, and cheap relative to history, and business is improving. Revenue this year is expected to grow 21% to $3.36 billion, with earnings jumping from $0.03 to $0.62 per share. Earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to surge 59%.

Steelcase’s next earnings release date is September 22, and the next ex-dividend date will be in October.

If you already hold SCS, for every 100 shares you own, sell to open one contract of $12.50 September 16 calls for at least $0.40.

Here is the recommended buy write: Buy 400 SCS ($12.25 current price) and sell to open 4 contracts of $12.50 calls that expire on September 16. For the combined buy write trade, use a net debit (stock price paid minus options premium earned) of $11.85 or lower. Raising the net debit by a nickel would not kill the appeal of the trade.

If Steelcase shares close above $12.50 at expiration on September 16, these calls would be assigned and our SCS stock would be sold at $12.50. On the buy write, this would produce a gain of $0.65 per share on $11.85 per share at risk, or 5.49%. Over a 29-day holding period, the annualized return would be 69%. If SCS closes at or below $12.50 at expiration, you would continue to own the stock at a costs basis of $11.85 per share.

Options income for this trade: We earn $160 selling 4 SCS September 16 $12.50 call contracts. 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.

NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2022 by Forbes Media LLC.