Strategy To YieldBoost AIG To 5.5% Using Options
March 20, 2017 at 11:41 AM EDT
Shareholders of American International Group Inc (AIG) looking to boost their income beyond the stock's 2% annualized dividend yield can sell the January 2018 covered call at the $70 strike and collect the premium based on the $1.79 bid, which annualizes to an additional 3.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5.5% 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 AIG shares would have to climb 12.2% 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.