Strategy To YieldBoost PAG To 15.3% Using Options

Shareholders of Penske Automotive Group Inc (PAG) looking to boost their income beyond the stock's 1.7% annualized dividend yield can sell the August covered call at the $45 strike and collect the premium based on the $1.95 bid, which annualizes to an additional 13.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.3% annualized rate in the scenario where the stock is not called away. Any upside above $45 would be lost if the stock rises there and is called away, but PAG shares would have to climb 4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 8.6% return from this trading level, in addition to any dividends collected before the stock was called.