How To YieldBoost Realty Income Corp From 4.2% To 12.8% Using Options
March 21, 2017 at 11:55 AM EDT
Shareholders of Realty Income Corp (O) looking to boost their income beyond the stock's 4.2% annualized dividend yield can sell the September covered call at the $60 strike and collect the premium based on the $2.50 bid, which annualizes to an additional 8.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.8% annualized rate in the scenario where the stock is not called away. Any upside above $60 would be lost if the stock rises there and is called away, but O shares would have to climb 0.8% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 5% return from this trading level, in addition to any dividends collected before the stock was called.