Strategy To YieldBoost CVR Energy To 12.4% Using Options

Shareholders of CVR Energy Inc (CVI) looking to boost their income beyond the stock's 6.4% annualized dividend yield can sell the March 2015 covered call at the $53 strike and collect the premium based on the $1.80 bid, which annualizes to an additional 6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.4% annualized rate in the scenario where the stock is not called away. Any upside above $53 would be lost if the stock rises there and is called away, but CVI shares would have to advance 12.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16.3% return from this trading level, in addition to any dividends collected before the stock was called.