Strategy To YieldBoost PSA To 8.6% Using Options
April 22, 2014 at 11:43 AM EDT
Shareholders of Public Storage (PSA) looking to boost their income beyond the stock's 3.2% annualized dividend yield can sell the December covered call at the $175 strike and collect the premium based on the $6.10 bid, which annualizes to an additional 5.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 8.6% annualized rate in the scenario where the stock is not called away. Any upside above $175 would be lost if the stock rises there and is called away, but PSA shares would have to advance 1.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 5.2% return from this trading level, in addition to any dividends collected before the stock was called.