Strategy To YieldBoost IDCC To 13% Using Options
October 18, 2017 at 11:35 AM EDT
Shareholders of Interdigital Inc (IDCC) looking to boost their income beyond the stock's 1.9% annualized dividend yield can sell the March 2018 covered call at the $80 strike and collect the premium based on the $3.40 bid, which annualizes to an additional 11.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 13% annualized rate in the scenario where the stock is not called away. Any upside above $80 would be lost if the stock rises there and is called away, but IDCC shares would have to advance 6.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 11.1% return from this trading level, in addition to any dividends collected before the stock was called.