Strategy To YieldBoost CNP From 4.3% To 8.6% Using Options

Shareholders of CenterPoint Energy, Inc (CNP) looking to boost their income beyond the stock's 4.3% annualized dividend yield can sell the January 2018 covered call at the $25 strike and collect the premium based on the $1.15 bid, which annualizes to an additional 4.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 8.6% annualized rate in the scenario where the stock is not called away. Any upside above $25 would be lost if the stock rises there and is called away, but CNP shares would have to climb 4.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.5% return from this trading level, in addition to any dividends collected before the stock was called.