YieldBoost Lithia Motors To 12.6% Using Options
June 02, 2017 at 11:54 AM EDT
Shareholders of Lithia Motors Inc (LAD) looking to boost their income beyond the stock's 1.2% annualized dividend yield can sell the December covered call at the $100 strike and collect the premium based on the $5.70 bid, which annualizes to an additional 11.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.6% annualized rate in the scenario where the stock is not called away. Any upside above $100 would be lost if the stock rises there and is called away, but LAD shares would have to advance 7.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 13.4% return from this trading level, in addition to any dividends collected before the stock was called.