How To YieldBoost CTAS To 9.7% Using Options
January 21, 2016 at 12:02 PM EST
Shareholders of Cintas Corporation (CTAS) looking to boost their income beyond the stock's 1.3% annualized dividend yield can sell the August covered call at the $85 strike and collect the premium based on the $3.90 bid, which annualizes to an additional 8.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.7% annualized rate in the scenario where the stock is not called away. Any upside above $85 would be lost if the stock rises there and is called away, but CTAS shares would have to climb 5.3% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 10.2% return from this trading level, in addition to any dividends collected before the stock was called.