Strategy To YieldBoost PetMed Express To 15.6% Using Options
February 27, 2014 at 11:42 AM EST
Shareholders of PetMed Express Inc (PETS) looking to boost their income beyond the stock's 5% annualized dividend yield can sell the June covered call at the $15 strike and collect the premium based on the 45 cents bid, which annualizes to an additional 10.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.6% annualized rate in the scenario where the stock is not called away. Any upside above $15 would be lost if the stock rises there and is called away, but PETS shares would have to climb 10% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 13.3% return from this trading level, in addition to any dividends collected before the stock was called.