How To YieldBoost CPLA To 13.4% Using Options
June 24, 2015 at 11:40 AM EDT
Shareholders of Capella Education Company (CPLA) looking to boost their income beyond the stock's 2.6% annualized dividend yield can sell the December covered call at the $60 strike and collect the premium based on the $2.95 bid, which annualizes to an additional 10.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 13.4% annualized rate in the scenario where the stock is not called away. Any upside above $60 would be lost if the stock rises there and is called away, but CPLA shares would have to climb 6.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 11.6% return from this trading level, in addition to any dividends collected before the stock was called.