How To YieldBoost BorgWarner To 12% Using Options
July 21, 2015 at 11:32 AM EDT
Shareholders of BorgWarner Inc (BWA) looking to boost their income beyond the stock's 1% annualized dividend yield can sell the January 2016 covered call at the $52.50 strike and collect the premium based on the $2.80 bid, which annualizes to an additional 11% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12% annualized rate in the scenario where the stock is not called away. Any upside above $52.50 would be lost if the stock rises there and is called away, but BWA shares would have to climb 0.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 5.8% return from this trading level, in addition to any dividends collected before the stock was called.