How To YieldBoost Vulcan Materials From 0.4% To 9.2% Using Options
December 29, 2015 at 11:39 AM EST
Shareholders of Vulcan Materials Co (VMC) looking to boost their income beyond the stock's 0.4% annualized dividend yield can sell the January 2017 covered call at the $105 strike and collect the premium based on the $9.00 bid, which annualizes to an additional 8.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.2% annualized rate in the scenario where the stock is not called away. Any upside above $105 would be lost if the stock rises there and is called away, but VMC shares would have to advance 9.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 18.4% return from this trading level, in addition to any dividends collected before the stock was called.