Strategy To YieldBoost BRSS From 0.5% To 10.3% Using Options
April 28, 2016 at 11:42 AM EDT
Shareholders of Global Brass & Copper Holdings Inc (BRSS) looking to boost their income beyond the stock's 0.5% annualized dividend yield can sell the October covered call at the $30 strike and collect the premium based on the $1.30 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 10.3% annualized rate in the scenario where the stock is not called away. Any upside above $30 would be lost if the stock rises there and is called away, but BRSS shares would have to climb 8.7% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 13.4% return from this trading level, in addition to any dividends collected before the stock was called.