ARCH Dividend

Although ARCH has a dividend of 0.40 with an ex-dividend date of Aug 30, you can sell covered calls on ARCH COAL INC to create 12 extra dividend type payments per year to boost its yield. Let's look at some recent prices (last updated Fri 4:16 PM ET):

ARCH COAL INC (ARCH)
Bid Ask Last Change Volume P/E Market Cap
89.79 89.84 89.80 +0.65 253K 7.8 1.7B

ARCH Dividend-Like Income Using Covered Calls

With ARCH at 89.80, here's a table showing how big the annual "dividend" (ie. total annual call premium received) would need to be to attain 3%, 5%, and 10% annual yields. Also shown is the equivalent number of cents/day necessary to achieve each yield:

Annual Yield Annual Premium Cents/Day
3% 2.69 0.7
5% 4.49 1.2
10% 8.98 2.5

So now we need to find out of the money covered calls that pay at least the prescribed cents/day amount of time premium. That will generate income and, because they are out of the money, leave room for some upside potential on the stock. Here are some examples:

3% Yield On ARCH Using Covered Calls
Expiration Strike Call Bid Days Cents/Day Upside Potential
Sep 21 95.00 0.95 36 2.6 5.16 (5.7%)
Nov 16 105.00 1.25 92 1.4 15.16 (16.9%)
5% Yield On ARCH Using Covered Calls
Expiration Strike Call Bid Days Cents/Day Upside Potential
Sep 21 95.00 0.95 36 2.6 5.16 (5.7%)
Nov 16 105.00 1.25 92 1.4 15.16 (16.9%)
10% Yield On ARCH Using Covered Calls
Expiration Strike Call Bid Days Cents/Day Upside Potential
Sep 21 95.00 0.95 36 2.6 5.16 (5.7%)
Nov 16 95.00 3.80 92 4.1 5.16 (5.7%)

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