Interactive Brokers is an IBD Sector Leader that above the 21, 50 and 200-day moving averages. That indicates impressive relative strength during this market correction.
IBKR stock is up 21% over the last three months, outperforming the S&P 500, which is up only 4.6%.
According to the IBD Stock Checkup, IBKR stock is ranked No. 1 in its industry group and has a Composite Rating of 98, an EPS Rating of 98 and a Relative Strength Rating of 91.
Income investors might consider a covered call strategy. Let's look at how a covered call trade on IBKR might take shape.
Buying 100 shares of IBKR would cost around $9,135.
A Dec. 15, 95-strike call option was trading Tuesday for around $4.80, generating $480 in premium per contract.
Potential 9.8% Return In Four Months
Selling the call option generates an income of 5.5% in just under four months, equaling around 17.60% annualized.
If IBKR stock closes above 95 on the expiration date, the shares will be called away at 95, leaving the trader with a total profit of $845. (That's the gain on the shares plus the $480 option premium received.)
That equates to a 9.76% return, which is 31% on an annualized basis.
Of course, the risk with the trade is that IBKR stock might drop, which could wipe out any gains made from selling the call.
Strategy Generates Income, Manages Risk
Covered calls can be an effective strategy for generating income, managing downside risk and reducing the effective purchase price of a stock.
A stop loss could be implemented if IBKR stock drops 8% from the entry point.
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Please remember that options are risky, and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
