YieldBoost Discover Financial Services From 1.9% To 4% Using Options
June 24, 2015 at 11:34 AM EDT
Shareholders of Discover Financial Services (DFS) looking to boost their income beyond the stock's 1.9% annualized dividend yield can sell the January 2017 covered call at the $70 strike and collect the premium based on the $2.00 bid, which annualizes to an additional 2.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4% annualized rate in the scenario where the stock is not called away. Any upside above $70 would be lost if the stock rises there and is called away, but DFS shares would have to climb 17.9% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 21.2% return from this trading level, in addition to any dividends collected before the stock was called.