How To YieldBoost Tronox To 24.5% Using Options
October 08, 2014 at 11:33 AM EDT
Shareholders of Tronox Ltd (TROX) looking to boost their income beyond the stock's 4.2% annualized dividend yield can sell the January 2015 covered call at the $25 strike and collect the premium based on the $1.35 bid, which annualizes to an additional 20.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 24.5% annualized rate in the scenario where the stock is not called away. Any upside above $25 would be lost if the stock rises there and is called away, but TROX shares would have to advance 4.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 9.7% return from this trading level, in addition to any dividends collected before the stock was called.