YieldBoost DK To 10.5% Using Options
July 21, 2015 at 11:33 AM EDT
Shareholders of Delek US Holdings Inc (DK) looking to boost their income beyond the stock's 1.6% annualized dividend yield can sell the January 2016 covered call at the $42.50 strike and collect the premium based on the $1.65 bid, which annualizes to an additional 8.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.5% annualized rate in the scenario where the stock is not called away. Any upside above $42.50 would be lost if the stock rises there and is called away, but DK shares would have to climb 12% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.3% return from this trading level, in addition to any dividends collected before the stock was called.