YieldBoost Eagle Materials From 0.5% To 14.2% Using Options
July 24, 2015 at 11:34 AM EDT
Shareholders of Eagle Materials Inc (EXP) looking to boost their income beyond the stock's 0.5% annualized dividend yield can sell the January 2016 covered call at the $77.50 strike and collect the premium based on the $4.90 bid, which annualizes to an additional 13.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 14.2% annualized rate in the scenario where the stock is not called away. Any upside above $77.50 would be lost if the stock rises there and is called away, but EXP shares would have to climb 3.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 10.3% return from this trading level, in addition to any dividends collected before the stock was called.