How To YieldBoost PriceSmart To 15.8% Using Options
March 03, 2015 at 11:34 AM EST
Shareholders of PriceSmart Inc (PSMT) looking to boost their income beyond the stock's 0.9% annualized dividend yield can sell the July covered call at the $80 strike and collect the premium based on the $4.30 bid, which annualizes to an additional 14.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.8% annualized rate in the scenario where the stock is not called away. Any upside above $80 would be lost if the stock rises there and is called away, but PSMT shares would have to advance 3.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 8.9% return from this trading level, in addition to any dividends collected before the stock was called.