Strategy To YieldBoost Acuity Brands From 0.4% To 11.5% Using Options
October 28, 2014 at 11:26 AM EDT
Shareholders of Acuity Brands Inc (AYI) looking to boost their income beyond the stock's 0.4% annualized dividend yield can sell the May 2015 covered call at the $145 strike and collect the premium based on the $8.40 bid, which annualizes to an additional 11.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.5% annualized rate in the scenario where the stock is not called away. Any upside above $145 would be lost if the stock rises there and is called away, but AYI shares would have to advance 4.8% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 10.9% return from this trading level, in addition to any dividends collected before the stock was called.