YieldBoost TWIN To 7% Using Options
November 06, 2015 at 11:34 AM EST
Shareholders of Twin Disc Incorporated (TWIN) looking to boost their income beyond the stock's 3.3% annualized dividend yield can sell the June 2016 covered call at the $15 strike and collect the premium based on the 25 cents bid, which annualizes to an additional 3.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7% annualized rate in the scenario where the stock is not called away. Any upside above $15 would be lost if the stock rises there and is called away, but TWIN shares would have to advance 36% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 38.3% return from this trading level, in addition to any dividends collected before the stock was called.