How To YieldBoost American Equity Investment Life Holding To 15.5% Using Options

Shareholders of American Equity Investment Life Holding Co (AEL) looking to boost their income beyond the stock's 1.4% annualized dividend yield can sell the November covered call at the $17.50 strike and collect the premium based on the 75 cents bid, which annualizes to an additional 14.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.5% annualized rate in the scenario where the stock is not called away. Any upside above $17.50 would be lost if the stock rises there and is called away, but AEL shares would have to climb 10.3% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 15.1% return from this trading level, in addition to any dividends collected before the stock was called.