How To YieldBoost AGX From 1.1% To 11% Using Options
June 05, 2017 at 11:35 AM EDT
Shareholders of Argan Inc (AGX) looking to boost their income beyond the stock's 1.1% annualized dividend yield can sell the October covered call at the $70 strike and collect the premium based on the $2.30 bid, which annualizes to an additional 9.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11% annualized rate in the scenario where the stock is not called away. Any upside above $70 would be lost if the stock rises there and is called away, but AGX shares would have to advance 12.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.1% return from this trading level, in addition to any dividends collected before the stock was called.