YieldBoost VIAB From 3.5% To 7.3% Using Options
July 21, 2016 at 12:08 PM EDT
Shareholders of Viacom Inc (VIAB) looking to boost their income beyond the stock's 3.5% annualized dividend yield can sell the January 2018 covered call at the $55 strike and collect the premium based on the $2.60 bid, which annualizes to an additional 3.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.3% annualized rate in the scenario where the stock is not called away. Any upside above $55 would be lost if the stock rises there and is called away, but VIAB shares would have to climb 20.9% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 26.6% return from this trading level, in addition to any dividends collected before the stock was called.