How To YieldBoost Science Applications International To 10.1% Using Options
September 02, 2014 at 13:20 PM EDT
Shareholders of Science Applications International Corp (SAIC) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the February 2015 covered call at the $50 strike and collect the premium based on the $1.65 bid, which annualizes to an additional 7.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.1% annualized rate in the scenario where the stock is not called away. Any upside above $50 would be lost if the stock rises there and is called away, but SAIC shares would have to climb 8.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 12.1% return from this trading level, in addition to any dividends collected before the stock was called.