YieldBoost UTX To 4.5% Using Options
July 21, 2016 at 12:08 PM EDT
Shareholders of United Technologies Corp (UTX) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the January 2018 covered call at the $120 strike and collect the premium based on the $3.20 bid, which annualizes to an additional 2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.5% annualized rate in the scenario where the stock is not called away. Any upside above $120 would be lost if the stock rises there and is called away, but UTX shares would have to advance 12.7% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 15.7% return from this trading level, in addition to any dividends collected before the stock was called.