Strategy To YieldBoost RGLD To 6.2% Using Options
July 25, 2016 at 11:53 AM EDT
Shareholders of Royal Gold Inc (RGLD) looking to boost their income beyond the stock's 1.2% annualized dividend yield can sell the January 2018 covered call at the $115 strike and collect the premium based on the $5.70 bid, which annualizes to an additional 5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.2% annualized rate in the scenario where the stock is not called away. Any upside above $115 would be lost if the stock rises there and is called away, but RGLD shares would have to climb 49.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 57.2% return from this trading level, in addition to any dividends collected before the stock was called.