Strategy To YieldBoost HCI From 2.6% To 16.3% Using Options

Shareholders of HCI Group Inc (HCI) looking to boost their income beyond the stock's 2.6% annualized dividend yield can sell the January 2015 covered call at the $45 strike and collect the premium based on the $2.20 bid, which annualizes to an additional 13.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.3% annualized rate in the scenario where the stock is not called away. Any upside above $45 would be lost if the stock rises there and is called away, but HCI shares would have to advance 5.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 10.3% return from this trading level, in addition to any dividends collected before the stock was called.