Here is a way to get paid a meaningful income now on a stock you already own, cash you keep no matter what, in exchange for capping your gains at a higher price. Comfort Systems USA (FIX) has been on an absolute monster run, delivering a return of over one hundred fifty percent in the past year by building out the guts of the new data-center economy. But after that climb, the stock now trades about 16% below its 52-week high, leaving owners to wonder if the easy money has been made.
For those holding shares, this presents a classic opportunity to generate income by agreeing to sell your stock at a price above where it is today. 17% annualized income on FIX shares you already own, with 20% of upside room, by selling a covered call. You own (or buy) 100 shares of FIX near today's price of $1737.92. Sell one call option on FIX expiring 12/17/2027, with a strike price of $2080, about 20% above today.
Collect roughly $40,700 in premium up front per contract (each contract covers 100 shares), which you keep no matter what the stock does. That premium is about 16.9% annualized on the $173,792 of stock, income you earn just for holding. If FIX finishes above $2080, your shares are called away at $2080.
Counting the premium, your total return works out to about 30% annualized, but you give up any gains above the strike. If FIX finishes below $2080 on 12/17/2027, the call expires worthless, and you keep the full $40,700 premium and all your shares. That is about 23% over 492 days, income earned just for holding, and you are free to sell another call.
If FIX finishes above $2080, your 100 shares are called away at $2080. You still keep the $40,700 premium, and counting it your total gain works out to about 43% over the holding period (about 30% annualized), a healthy exit. The cost of the trade is that any gain above $2080 is no longer yours.
And if the stock instead falls, you keep the premium but still ride the shares down, cushioned only slightly. The only real cost is the upside you forfeit if the stock rips higher. The bull case for that happening is straightforward: the company is executing flawlessly on a historic demand wave.
Extract — continue reading at the source.
