Strategy To YieldBoost Signet Jewelers To 7.4% Using Options
August 21, 2014 at 11:37 AM EDT
Shareholders of Signet Jewelers Ltd (SIG) looking to boost their income beyond the stock's 0.7% annualized dividend yield can sell the April 2015 covered call at the $115 strike and collect the premium based on the $4.70 bid, which annualizes to an additional 6.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.4% annualized rate in the scenario where the stock is not called away. Any upside above $115 would be lost if the stock rises there and is called away, but SIG shares would have to climb 8.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 12.7% return from this trading level, in addition to any dividends collected before the stock was called.