YieldBoost CHE From 0.7% To 11% Using Options
October 06, 2015 at 11:41 AM EDT
Shareholders of Chemed Corp (CHE) looking to boost their income beyond the stock's 0.7% annualized dividend yield can sell the March 2016 covered call at the $140 strike and collect the premium based on the $6.00 bid, which annualizes to an additional 10.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11% annualized rate in the scenario where the stock is not called away. Any upside above $140 would be lost if the stock rises there and is called away, but CHE shares would have to advance 7% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 11.6% return from this trading level, in addition to any dividends collected before the stock was called.