How To YieldBoost American Railcar Industries To 12.5% Using Options
November 24, 2014 at 11:43 AM EST
Shareholders of American Railcar Industries Inc (ARII) looking to boost their income beyond the stock's 2.4% annualized dividend yield can sell the March 2015 covered call at the $75 strike and collect the premium based on the $2.15 bid, which annualizes to an additional 10.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.5% annualized rate in the scenario where the stock is not called away. Any upside above $75 would be lost if the stock rises there and is called away, but ARII shares would have to advance 11.6% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 14.8% return from this trading level, in addition to any dividends collected before the stock was called.