How To YieldBoost Marchex To 38.6% Using Options
April 16, 2014 at 12:24 PM EDT
Shareholders of Marchex Inc (MCHX) looking to boost their income beyond the stock's 0.9% annualized dividend yield can sell the May covered call at the $10 strike and collect the premium based on the 30 cents bid, which annualizes to an additional 37.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 38.6% annualized rate in the scenario where the stock is not called away. Any upside above $10 would be lost if the stock rises there and is called away, but MCHX shares would have to advance 6.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.9% return from this trading level, in addition to any dividends collected before the stock was called.