How To YieldBoost HomeStreet Inc From 0.6% To 13.8% Using Options
March 20, 2014 at 11:39 AM EDT
Shareholders of HomeStreet (HMST) looking to boost their income beyond the stock's 0.6% annualized dividend yield can sell the May covered call at the $20 strike and collect the premium based on the 40 cents bid, which annualizes to an additional 13.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 13.8% annualized rate in the scenario where the stock is not called away. Any upside above $20 would be lost if the stock rises there and is called away, but HMST shares would have to climb 5.1% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 7.2% return from this trading level, in addition to any dividends collected before the stock was called.