Yandex NV (YNDX): Income Traders Could Make 56% a Year With the Russian Google Inc (GOOG)

The stock is currently trading near $28.34 and holding well above key support levels. Since we’re still in a period of market volatility (and because the option premiums are so high), I want to sell in-the-money calls. This gives us a great income trade, while still protecting us against a modest drop in the stock price.

Currently, the August $28 calls are trading at $1.85. So we want to buy shares of Yandex NV (NASDAQ:YNDX) in 100-share lots, and then sell the YNDX Aug 28 Calls against the position. Remember, each option contract is equivalent to 100 shares of stock. So we only want to sell one call contract for every 100 shares of stock that we own.

Between our entry price of $28.34 and the $1.85 premium that we receive from the options, our net entry price will be $26.49. By selling the calls, we have an obligation to sell the stock at $28 as long as it stays above this level when the calls expire on Aug. 16.

If we are forced to sell our stock at $28, we will recognize a net profit of $1.51 per share. This represents a 5.7% gain over a 37-day period. Assuming we can continue to find opportunities like this throughout the year, this represents a gain of 56% per year.

Best of all, our trade gives us a significant amount of protection in case Yandex NV (NASDAQ:YNDX) backs off a bit. Since our cost basis is $26.49, the stock could drop a full 6.5% and we still wouldn’t realize a loss on the trade. And keep in mind that if this were to happen, we could turn around and sell more calls on this position to lock in additional income.

YNDX represents a premium covered call opportunity because of the niche in which the company operates. Over the next few months, we’ll continue to monitor special situations like this to find the best covered call opportunities.

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