How To YieldBoost FutureFuel Corp To 14.2% Using Options
March 27, 2015 at 11:30 AM EDT
Shareholders of FutureFuel Corp (FF) looking to boost their income beyond the stock's 2.1% annualized dividend yield can sell the August covered call at the $12.50 strike and collect the premium based on the 55 cents bid, which annualizes to an additional 12.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 14.2% annualized rate in the scenario where the stock is not called away. Any upside above $12.50 would be lost if the stock rises there and is called away, but FF shares would have to climb 10.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 15.4% return from this trading level, in addition to any dividends collected before the stock was called.