YieldBoost TROX From 3.7% To 35.2% Using Options
May 24, 2016 at 11:51 AM EDT
Shareholders of Tronox Ltd (TROX) looking to boost their income beyond the stock's 3.7% annualized dividend yield can sell the November covered call at the $5 strike and collect the premium based on the 75 cents bid, which annualizes to an additional 31.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 35.2% annualized rate in the scenario where the stock is not called away. Any upside above $5 would be lost if the stock rises there and is called away, but TROX shares would have to climb 2.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 17.8% return from this trading level, in addition to any dividends collected before the stock was called.