Strategy To YieldBoost ETN To 6.3% Using Options
June 12, 2017 at 11:43 AM EDT
Shareholders of Eaton Corp plc (ETN) looking to boost their income beyond the stock's 3.2% annualized dividend yield can sell the January 2019 covered call at the $85 strike and collect the premium based on the $3.80 bid, which annualizes to an additional 3.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.3% annualized rate in the scenario where the stock is not called away. Any upside above $85 would be lost if the stock rises there and is called away, but ETN shares would have to climb 11.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.7% return from this trading level, in addition to any dividends collected before the stock was called.